Fitch takes SA closer to junk status

Johannesburg - South Africa’s credit rating edged closer to “junk” status on Friday as one of the three major international ratings agencies changed its outlook from stable to negative, while keeping its rating at BBB-, the lowest rung of investment grade.

Fitch Ratings said political risks to standards of governance and policymaking had increased and would remain high – at least until the ANC’s national elective conference, which will take place in December 2017 – negatively affecting macroeconomic performance.

“The infighting within the ANC and the government is likely to continue over the next year,” Fitch said.

“This will distract policymakers and lead to mixed messages that will continue to undermine the investment climate, thereby constraining GDP growth,” the agency added.

Fitch also made mention of former public protector Thuli Madonsela’s State of Capture report, in which allegations were made of influence peddling and improper procurement practices involving close allies of President Jacob Zuma – though it noted that the report would be subject to a judicial review and commission of inquiry.

“The report underlines the risks to state-owned enterprise (SOE) governance,” the agency said.

“The South African economy may have started recovering from a series of shocks, but business confidence remains depressed and investment has continued to contract,” Fitch said, adding that government’s fiscal targets to cut its budget deficit “now look only mildly optimistic”.

Turning to the #FeesMustFall campaign, the agency noted the extra spending budgeted for student bursaries, but said the protests showed that social pressures could lead to further spending needs.

Pointing to South Africa’s growing working-age population and the high unemployment rate, which rose to 27.1% – the highest figure since 2003 – Fitch said it would contribute to spending pressure.

“The fact that expenditure ceilings, introduced in 2012, have never been breached suggests such pressures have so far been well managed,” Fitch said.

The agency noted added pressure on government from the high debt incurred by nine major SOEs, amounting to R743 billion.

Fitch welcomed the state’s having pushed back its time frame for building extra nuclear power, saying this alleviated concerns over any medium-term fiscal effects.

In response, Treasury said: “Efforts made by South Africa to keep the country on an investment grade have paid off.”

Jabu Mabuza, the chair of Business Unity SA, said: “We obviously welcome the decision to keep us at investment grade.

“We would have preferred that the outlook remain stable, but it is a vindication of all the efforts at structural reform driven by government, business and labour.”

S&P Global, which has South Africa at one notch above sub-investment, will also release its review this Friday.