Govt assures Fitch measures in place to reduce load shedding
Treasury says it is confident that the correct fiscal strategy is in place to get to financial sustainability and create economic growth.
Treasury was reacting to credit rating agency Fitch's decision on Monday to maintain its BB-credit rating for South Africa, keeping the long-term foreign and local currency debt ratings on stable.
Fitch Ratings affirmed South Africa's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook.
"We forecast zero real GDP growth in 2023, against 1.9% growth in 2022, due to severe power shortages in recent months that are likely to weigh heavily on GDP," the agency said.
"This should be followed by a modest recovery to 0.9% growth in 2024 and 1.3% in 2025. Strong investment in power generation after the deregulation of the sector should moderately improve energy supply from 2024 and support the recovery. However, real GDP growth will remain constrained by a poorly functioning transportation sector that drags on exports.
"The implementation of structural reforms under the government's Operation Vulindlela initiative, launched in 2020, has accelerated. Licensing requirements for embedded power-generation projects of any size have been removed, enabling private-sector investment of more than 10 gigawatts of new generation capacity at various stages of development.
"The logistics sector should also see the effective separation of operations and infrastructure management functions by October 2023, boosting competition and third-party rail access.
Nevertheless, the reforms are limited in ambition and we do not think they will significantly enhance South Africa's low growth potential."
Responding to the statement, Treasury stated that the government is implementing urgent measures to reduce load shedding in the short term and transform the sector through market reforms to achieve long-term energy security.
"According to Fitch, South Africa’s credit rating is constrained by low real GDP growth hampered by power shortages, high level of inequality, a high government debt-to-GDP ratio, and a modest path of fiscal consolidation. The ratings are supported by a favourable debt structure with long maturities and denominated mostly in local currency as well a credible monetary policy framework.
"Over the medium-term, the fiscal strategy aims to achieve fiscal sustainability by reducing the budget deficit and stabilising the debt-to-GDP ratio. On-budget allocations for infrastructure and other policy priorities and maintaining a sustainable fiscal stance will support economic growth."
But the US credit rating agency warns that load shedding can wipe out any prospect of economic growth in 2023.
"We anticipate weaker revenue growth due to the lack of real GDP growth and additional spending following a public-service wage agreement that will only be partially offset by savings elsewhere.
"The consolidated budget deficit should stabilise at 4.6% of GDP in FY25 and moderately narrow to 4.2% in FY26, supported by higher revenue growth. However, this will be partially offset by spending pressures including from high social spending beyond the life of the social relief of distress programme, which is due to expire in March 2024.
"Rising Government Debt, Favourable Structure: We expect gross loan debt to reach 76.9% of GDP in FY26, up from 72.3% at FY23, against a government forecast of 73.6%. This is well above the end-2022 'BB' median of 56.2% of GDP."
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