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Friday, 19 January 2024 22:53

Fitch keeps SA's credit rating unchanged at BB- with stable outlook.

By Lehlohonolo Lehana.

The international credit rating agency Fitch Ratings on Friday, has kept South Africa's credit rating unchanged, predicting that load shedding will ease in 2024. 

Fitch's rating remains at 'BB-' with a stable outlook, which is in line with S&P's rating (also BB-).

Moody's rates South Africa slightly higher: at Ba2, which is equivalent to the BB rating Fitch and S&P  use.

In its ratings report, released on Friday, Fitch projected that the local economy would grow by 0.9% in 2024 and 1.3% in 2025, from an estimated 0.5% in 2023.

"Growth is hampered by power shortages that are expected to continue in the near to medium term, although at a lower magnitude than in recent months, and by a struggling logistics sectors," said Fitch.

Transnet's financial and operational challenges have led to disruptions in supply chains due to a dysfunctional freight rail and port delays.

The ratings agency estimates the intensity of load shedding will reduce between 2024 and 2025, attributing the improvement to the return of three units at Kusile power station since September 2023.

"Further capacity is expected to come from private sector investments, with a pipeline of confirmed projects representing 12GW of new capacity," Fitch said.

The agency notes that reforms as part of Operation Vulindlela, which was established by the Presidency and National Treasury in 2020 to remove obstacles to growth, have been implemented in some sectors, particularly energy and logistics.

"Although the reforms will contribute to a modest increase in real GDP growth in the near to medium term, they are limited in ambition and we do not think they will significantly enhance South Africa's low growth potential, which we estimate at 1.2%."

Fitch warns that government debt is expected to reach 83.2% of GDP in the next year, from an estimated 76% currently. This is well above 52%, which is the median of BB-graded countries.

Noting Fitch's rating, National Treasury said it government would focus on raising GDP growth by improving the provision of electricity, logistics and enhancing delivery of infrastructure.

"Fiscal policy continues to support this approach by stabilising debt and debt-service costs," National Treasury said in a statement.

"Government reiterates that fiscal consolidation will be implemented through spending reductions, efficiency measures across government and moderate tax revenue measures, read the statement."