Fitch affirms S.Africa “BB-” credit rating

Fitch Ratings has chosen to uphold South Africa's credit rating at BB-, three steps below investment grade, providing a sense of relief for the country amidst ongoing challenges such as severe power cuts, a struggling economy, high government debt, and inequality. The ratings agency has maintained this rating with a stable outlook since the end of 2021. However, Fitch has revised South Africa's growth forecast down to 0 percent from 1 percent previously. In a recent interview on CNBC Africa, Andre Roux, an Economist at Stellenbosch Business School, discussed the implications of Fitch's decision. Fitch's assessment of South Africa's economic landscape is a mix of cautious optimism and recognition of existing challenges. The agency forecasts economic growth to remain stagnant at 0 percent this year, with slight improvements expected in the following years, peaking at 1.3 percent in 2025. One of the key factors hampering growth is the ongoing load shedding by ESCOM, which has significantly curtailed economic activity. Inequality also poses a challenge, impacting social cohesion and economic progress. Fitch highlights the importance of fiscal consolidation in managing the country's public debt burden. Despite efforts to control debt levels, factors like low growth, public sector wage hikes, and social security grants contribute to the risk of increasing public debt. However, Fitch acknowledges South Africa's track record of not defaulting on government debt and the majority of public debt being rand-denominated, which are positive factors. The agency observes a gradual decline in inflation and hints at a possible end to the upward interest rate cycle. Fitch also commends the rand's flexibility and liquidity, noting its ability to adjust in the face of current account deficits. On the downside, Fitch raises concerns about transport bottlenecks hampering export capabilities. Nonetheless, Fitch recognizes South Africa's strong institutions, particularly the judiciary, National Treasury, and the Reserve Bank, as pillars of stability. These institutions play a crucial role in mitigating economic risks and fostering investor confidence. Despite the credit rating affirmation, Fitch's report underscores the need for continued vigilance and structural reforms to address underlying economic challenges. Roux concurs with Fitch's assessment, considering it a balanced review of South Africa's economic outlook. He notes the importance of long-term projects, such as Transnet's recent partnership deal at the Durban port, in addressing logistical inefficiencies. Roux also reflects on Fitch's suggestion that the ANC may not secure a majority in the upcoming election, yet emphasizes that core economic policies are unlikely to undergo major changes. While recognizing the complexities of potential coalition governments, Roux anticipates that the ANC, even in a coalition, would retain significant influence over policymaking. Despite uncertainties surrounding the political landscape, Fitch's decision to maintain South Africa's credit rating signals a cautious optimism for the country's economic future, contingent upon effective governance and strategic reforms.