SA escapes another downgrade

Fitch says South Africa's ratings are weighed down by low GDP growth, sizeable contingent liabilities and deteriorating governance. 

"Positively, they are supported by deep local capital markets, a favourable government debt structure and a track record of fairly prudent fiscal and monetary policy," says the agency.

Fitch says the cabinet reshuffle at the end of March, which triggered an earlier downgrade of South Africa's ratings, is likely to undermine governance of state-owned enterprises (SOEs), weaken fiscal consolidation and reduce private sector investment as a result of weaker business confidence. 

"While efforts to improve the SOE governance framework will continue, implementation decisions, for example on appointments of senior SOE management, will hamper these efforts and could lead to weaker financial positions of SOEs and higher contingent liabilities for the government," says Fitch.

Fitch says a further deterioration in South Africa's trend GDP growth or a rising net external debt to levels that raise the potential for serious financing strains could result in negative rating action.

Treasury says it has noted the decision.

"Government notes the decision of Fitch and expresses gratitude to all the stakeholders who participated in the meetings with the rating agency and ensured that the country is not downgraded further," says Treasury.

According to Treasury, government's efforts remain focused on improving the growth trajectory and policy perceptions. 

"(Finance) Minister Malusi Gigaba is currently re-engaging with the private sector to make sure that the joint work of government, business, labour and the civil society continues and that the pledges made thus far are fulfilled."