The National Treasury has acknowledged credit ratings agency Fitch’s decision to affirm South Africa’s long term foreign and local currency debt ratings as ‘BB+’ and its revision of the country’s outlook from negative to stable.
South Africa’s foreign and local currency credit ratings by Fitch, however, remain below investment grade.
According to Fitch, the outlook revision reflects a “marked widening in the budget deficit as a result of lower gross domestic product (GDP) growth and increased spending, including State-owned companies’ support, that increases the agency’s projections for government debt and GDP”.
The rating also reflects the heightening difficulty of stabilising debt and GDP over the medium term.
Additionally, Fitch found that renewed downward revisions to GDP growth this year also raise new questions about the country’s GDP growth potential.
Commenting on these notes, government said it was aware of the strain and risk that State-owned companies, particularly Eskom, present to the fiscal framework, and averred that it was “urgently working on stabilising Eskom, while developing a broad strategy for its future”.
Government further said it “would have to make tough decisions to reverse the country’s debt trajectory and improve economic growth prospects”.
Nonetheless, the ratings agency has acknowledged that government is making efforts to boost growth, through besides others, the investment drive initiated by President Cyril Ramaphosa, measures to accelerate infrastructure investment, measures to reduce costs in transport and telecommunications, as well as improvements in visa regulations to strengthen tourism.
Fitch also acknowledged that the credibility of the South African Reserve Bank and its inflation targeting regime “remains an important credit strength”, and that government’s debt structure helped to reduce refinancing and exchange rate risks.
Finance Minister Tito Mboweni has previously announced that, in the Special Appropriation Bill, a team of officials have considered a number of options as a solution to Eskom’s debt challenge in order to ensure its sustainability.
The team of officials will be led by the directors-general of the National Treasury and the Department of Public Enterprises.