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. https://www.engineeringnews.co.za/article/govt-acknowledges-fitchs-ratings-changes-2019-07-29
