Ratings agency Fitch Ratings has affirmed South Africa’s long-term foreign and local currency debt ratings at ‘BB-’ and maintained the stable outlook.
It said in a statement on Friday that South Africa's rating is constrained by low real gross domestic product (GDP) growth, a high level of poverty and inequality, a high government debt/GDP ratio and a rigid fiscal structure that hampers deficit reduction.
The ratings were supported by a favourable debt structure strong institutions and a credible monetary policy framework, it said.
Fitch forecast low real GDP growth of 0.9% in 2024, 1.5% in 2025 and 1.3% in 2026, against 0.7% in 2023.
“Growth is hampered by a struggling logistics sector, deeply entrenched structural factors, particularly high levels of inequality, poverty and unemployment and weak investment. We expect the weakness to persist, despite robust demographics. Electricity shortages, which dragged on growth in 2022 and 2023, are expected to ease, but sporadic incidents of load-shedding could still occur,” it said.
“The formation of the GNU (Government of National Unity) following the May 2024 general elections lowers short-term policy uncertainty. We consider the ANC and DA broadly aligned on key priorities, particularly on the growth-enhancing agenda. Nevertheless, risks to political stability remain, with some topics, such as foreign policy, social grants and the national health insurance, potentially contentious. Risks are exacerbated by South Africa's exceptional level of social inequality,” it said in the statement.
The ratings agency forecast a consolidated fiscal deficit of 4.7% in the fiscal year ending March 2025.
“We expect revenue to remain at around 27% of GDP over the next three fiscal years,” it said, adding that risks to its forecasts were balanced, with wages and the national health insurance bill, if implemented posing upside risks to its expenditure forecast, while stronger GDP growth could boost revenue.
It forecast consolidated government debt to continue to rise, to 76% of GDP in financial year (FY) 2024, 77.8% in FY25 and 78.0% in FY26, well above the 2024 'BB' median of 55%.
It forecast South Africa's current account deficit to widen to 2.4% of GDP in 2024, from 1.6% in 2023, and stabilise at 2.6% in 2025 and 2026.
“We expect import growth to outpace export growth, with rising domestic demand fuelled by the relaxation of energy constraints and lower policy uncertainty,” it said.
It anticipated an increase in net portfolio investments, which, combined with still-strong net foreign direct investment inflows, would stabilise SA Reserve Bank's international reserves at 4.9 months of current external payments, against a 'BB' median of 4.5 months.
It said factors that could lead to positive rating action or upgrade included:
- Public Finances: Confidence that government debt/GDP will stabilise durably; for example, due to persistently higher tax collections combined with successful sustained expenditure control.
- Macro: Greater confidence that medium-term growth prospects will become sufficiently strong to support fiscal consolidation and address challenges from high inequality and unemployment.
Treasury said it noted Fitch’s statement, saying the government’s strategy for fiscal consolidation over the medium term involved exercising expenditure restraint and implementing moderate revenue increases, while continuing to support the social wage and ensuring additional funding for critical services.
“Furthermore, government has decided to further mitigate fiscal risks by reducing borrowing over the medium term through leveraging a portion of valuation gains in the Gold and Foreign Exchange Contingency Reserve Account. Extensive reforms in energy, freight, water, and telecommunications are also in progress,” it said in a statement
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