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On Monday, Fitch again maintained its "BB-" credit rating on South Africa – despite now expecting no economic growth this year.
The US credit rating agency kept its "stable" outlook on South Africa’s long-term foreign and local currency debt ratings.
South Africa maintained its current credit rating since end-2021, when Fitch upgraded its outlook from "negative" to "stable".
But where Fitch previously expected the local economy to grow by more than 1% in 2023, it now expects zero real GDP growth in 2023 due to loadshedding.
"Strong investment in power generation after the deregulation of the sector should moderately improve energy supply from 2024 and support the recovery. However, real GDP growth will remain constrained by a poorly functioning transportation sector that drags on exports."
Fitch warned that South Africa's rating is badly affected by the weak economy, load shedding, high government debt and inequality. But in the country's favour: government bonds have long time frames and were issued mostly in rand, and South Africa's monetary policy is "credible".
It also noted that the implementation of structural reforms under the government's Operation Vulindlela initiative, launched in 2020, has "accelerated". This included the removal of licensing requirements for energy projects.
"The logistics sector should also see the effective separation of operations and infrastructure management functions by October 2023, boosting competition and third-party rail access," Fitch said.
"Nevertheless, the reforms are limited in ambition and we do not think they will significantly enhance South Africa's low growth potential."
It remains concerned about high unemployment and income inequality, which threatens socio-political stability, with frequent strikes and protests. It adds that the ANC's dominance has been challenged since its poor performance in the 2021 municipal elections, adding:
We believe the party could lose its majority in the May 2024 general election, but this would be unlikely to result in major changes in economic policy.
Fitch expects that government's fiscal deficit will increase to 4.5% of GDP in the current year, from 4.2% last year due in part to lower tax revenue in a weak economy and the public-service wage agreement. Persistent large fiscal deficits could lead to a downgrade, Fitch warned. But its ratings could improve if government debt stabilised.
In a statement following the Fitch announcement, Treasury said government is implementing urgent measures to reduce load shedding and transform the sector through market reforms to achieve long-term energy security.
"Over the medium term, the fiscal strategy aims to achieve fiscal sustainability by reducing the budget deficit and stabilising the debt-to-GDP ratio. On-budget allocations for infrastructure and other policy priorities and maintaining a sustainable fiscal stance will support economic growth."