South Africa takes note of ratings outlook

8 June 2015

Responding to Fitch Ratings’ latest rating assessment of South Africa, the government said it recognised that the country’s economic growth needed to be accelerated, and that it was addressing the issues raised by the international ratings agency at the highest level.

Fitch affirmed South Africa’s long-term foreign and local currency Issuer Default Ratings at “BBB” and “BBB+” respectively, and also affirmed the negative outlook.

It said key drivers for the rating decision included weak economic growth potential on the back of electricity supply constraints and external financing vulnerabilities. The country’s deep local markets enhanced fiscal financing flexibility, it added.

The structure of government debt, 91% of which was denominated in local currency, limited exchange rate and refinancing risks. An improvement in the growth outlook and reduction in the current account and budget deficits would assist in stabilising the rating, Fitch said.

In a statement issued by the National Treasury at the weekend, the government admitted that the country’s economic growth performance needed to be higher in order to address South Africa’s challenges. Resolving the energy challenge was a priority, it said.

It pointed out that the government’s package to support Eskom was progressing, and that plans announced last week to allocate R23-billion into the company and convert a R60-billion loan into equity were firmly on track.

“The implementation of priority reforms of the National Development Plan remains a key objective of [the] government. Growth enhancing initiatives and programmes, targeting key sectors of the economy such as the energy sector, are being implemented to support the country’s economic competitiveness,” said the National Treasury.

It added that the government would broadly stick to its expenditure with regards to the fiscal position.

Source: News24Wire