Inequality, slow vaccine roll-out lead agencies to keep SA's credit rating unchanged
According to Fitch, South Africa’s rating is constrained by high and rising government debt, low trend growth, and exceptionally high inequality that will complicate consolidation efforts.
Government says it has noted the rating decisions by S&P and Fitch to keep the country's long term foreign and local currency debt ratings at ‘BB-’and ‘BB’, respectively.
S&P left the country's outlook as stable while Fitch decided on a negative outlook in its latest rating announcement.
According to Fitch, South Africa’s rating is constrained by high and rising government debt, low trend growth, and exceptionally high inequality that will complicate consolidation efforts.
It adds that while South Africa's near-term economic performance and current account are experiencing a cyclical uplift following a large economic contraction in 2020, structural constraints, a weak pace of economic reforms, and slow vaccination rates will continue to constrain medium-term economic growth and limit the government's ability to contain the debt-to-GDP ratio.
In a statement issued by Treasury, government says it acknowledges the pressures the country’s credit ratings face and remains committed to addressing them.
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"Additionally, Government is aware that it needs to fast track growth-enhancing strategies," according to Treasury.
"Operation Vulindlela is a key initiative in this regard and demonstrates Government’s commitment to fast-tracking the implementation of critical reforms that raise economic growth and improve fiscal sustainability.
"Rating agencies have indicated that South Africa’s rating strengths include a credible central bank, a flexible exchange rate, an actively traded currency, deep capital markets as well as a favourable debt structure (low share of foreign currency debt) with long maturities, which should help counterbalance low economic growth and fiscal pressures."
Treasury continues: "As highlighted in the 2021 Budget, Government’s fiscal strategy puts South Africa on course to achieve a sufficiently large primary surplus to stabilise debt.
"Over time, debt stabilisation will reduce borrowing costs and the cost of capital, attracting investment that can support the economy."
