Fitch Ratings unexpectedly upgraded its outlook on SA's credit rating, providing some respite as the country grapples with economic challenges.
Fitch kept the foreign and local currency ratings at BB-, three levels below investment grade, and changed the outlook to stable from negative.
The move reflects “the faster than expected economic recovery, the surprisingly strong fiscal performance this year and significant improvements to key gross domestic product-based credit metrics” after SA made changes to the way GDP is calculated, Fitch said this week.
“A recovery is under way and GDP now seems on track to return to pre-pandemic levels during 2022, notwithstanding a 1.5% quarter-on-quarter contraction” in the third quarter, partly triggered by unrest in July, Fitch said. It expects the economy to grow 4.7% this year, 2% in 2022 and 2.4% in 2023.
But it said the pandemic continues to weigh on the economy and remains a risk for public finances, but severe negative effects on creditworthiness has declined over the last year, despite the omicron variant and the surge in new cases in SA.
The stable outlook follows a medium-term budget buoyed by windfall mining revenue and an upward revision to GDP that showed debt is now forecast to peak at 78.1% of GDP — almost 10 percentage points lower than the government estimated in February — in the 2026 fiscal year. The consolidated budget deficit is expected to narrow faster than previously expected.
“Government will continue to demonstrate its commitment to fiscal sustainability and enable long-term growth by narrowing the budget deficit and sizeable debt,” the National Treasury said.
Godongwana said last month that the government will use part of the higher tax revenue generated by the commodity price surge to narrow the shortfall, while increasing non-interest expenditure to support spending priorities.
Moody’s Investors Service assesses it two steps below investment grade while S&P Global Ratings ranks it on the same level as Fitch.
Bloomberg
