Fitch Ratings has affirmed South Africa’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB-‘ with a Negative Outlook.
In a report posted on its website, Fitch said that the ‘BB-‘ rating is constrained by high and rising government debt, low trend growth and exceptionally high inequality that will complicate consolidation efforts.
The Negative Outlook reflects continued substantial risks to debt stabilisation despite the better than expected fiscal outturns in the fiscal year ending March 2021 (FY20/21), according to Fitch.
South Africa went into another lockdown in the first quarter of 2021 as a second wave of Covid-19 hit the country, but the lockdown was less restrictive than during the first wave around mid-2020.
South Africa’s economy is in the process of recovering from the sharp contraction of 7.0% last year and we expect growth of 4.3% in 2021 and 2.5% in 2022. Growth will be supported by the base effect and the rise in commodity prices. However, tight public finances, and in the near term, electricity shortages will hold back growth, the report stated.
Fitch expects medium-term growth to remain low at less than 2%, a key rating constraint, complicating fiscal consolidation.
The rating firm also expect general government debt to rise from 82.5% of GDP in FY20/21 to 87.1% in FY22/23, although this is significantly lower than its previous forecast of 94.8% in FY22/23.
Ifunanya Ikueze is an Engineer, Safety Professional, Writer, Investor, Entrepreneur and Educator.