The international credit ratings agency Fitch Ratings has again kept SA’s credit rating unchanged, saying that while the formation of the government of national unity (GNU) has lowered short-term policy uncertainty, risks to political stability remain due to contentious issues such as the implementation of the national health insurance (NHI).
Fitch’s rating remains at BB- with a stable outlook, indicating an elevated vulnerability to default risk.
In its ratings report released on Friday, Fitch projected that the local economy would grow by 0.9% in 2024, 1.5% in 2025 and 1.3% in 2026.
“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.”
The agency noted that electricity shortages, which hampered growth in 2022 and 2023, were expected to ease, but sporadic incidents of load-shedding could still occur.
Fitch expects the GNU to continue implementing reforms under Operation Vulindlela, launched in 2020. The programme aims to modernise network industries, including electricity, water and transport.
“This will contribute to a modestly increasing real GDP growth. However, we do not think the reforms will significantly raise SA’s low growth potential, which we estimate at 1%.”
It said Transnet’s 18-month recovery plan, announced in October 2023, enabled a small increase in railed and container volume, but with a reported net loss of R7.3bn, the company’s financial sustainability was constrained by high leverage.
The government was likely to extend more support to the ailing logistics company to aid its turnaround plan, Fitch said.
“We believe further government support is likely, and we have pencilled in a R50bn below-the-line support in our debt projection, split between the 2024 and 2025 financial years.”
The agency warned that the debt to GDP ratio “would not durably stabilise over the medium term” despite the temporarily reduced pave of debt accumulation enabled by government’s plans to withdraw R150bn from the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) over the 2024-2026 financial years.
“We forecast consolidated government debt to continue to rise to 76% of GDP in 2024, 77.8% in 2025 and 78.0% in 2026.”
In its response to the Fitch announcement, the Treasury said 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 GFECRA. Extensive reforms in energy, freight, water, and telecommunications are also in progress,” the Treasury said.
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