Fitch revises SA’s credit outlook downwards, affirms rating

Ratings agency Fitch has listed a number of issues including political risks, standards of governance and policy-making as concerns.

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JOHANNESBURG – Ratings agency Fitch has revised its outlook for South Africa to negative, but kept its rating unchanged at BBB minus.

Fitch has listed a number of issues including political risks, standards of governance and policy-making.

It says it expects only modest GDP growth of 1.3% next year and 2.1% in 2018.

However, this is an improvement from 0.5% this year.

Moody’s is also expected to release its outlook on Friday.


In a statement issued on Friday, the ratings agency elaborated on why it saw political risk as a key ratings driver.

Fitch stated that that political risks to standards of governance and policy-making have increased and will remain high at least until the electoral conference of the African National Congress (ANC) in 2017. The governing party will elect a new party leader – who stand as its 2019 presidential candidate – in December next year. The high political risk, Fitch says, negatively affects macroeconomic performance.

“The in-fighting within the ANC and the government is likely to continue over the next year. In Fitch’s view, this will distract policymakers and lead to mixed messages that will continue to undermine the investment climate, thereby constraining GDP growth.”

Fitch also said allegations of undue influence in government procurement processes, contained in the Public Protector’s State of Capture report, underlined the risk of the governance of State Owned Enterprises and resulted in the resignation of Eskom Chief Executive Officer Brian Molefe.

“The South African economy may have started recovering from a series of shocks, but business confidence remains depressed and investment has continued to contract.”


This week, the ministerial task team on higher education announced that a new funding model, Ikusasa Financial Aid Scheme, could ensure financial support for poor students and the so-called ‘missing middle’.

At the same time, Statistician General Pali Lehola warned that unemployment in the country was on the rise.
In its statement, Fitch said that the country’s debt structure remains highly favourable, with 90.7% of debt denominated in local currency and an average maturity of government debt securities of 14.6 years at end-September 2016.

“Additional spending on student bursaries as a result of student protests was absorbed by using the contingency reserve, some one-off financing and a re-prioritisation of other expenditures, but the protests showed that social pressures could lead to further spending needs.

“Growth of the working age population of around 2% and high and rising unemployment, at 27.1% in the third quarter, also contribute to spending pressures. However, the fact that expenditure ceilings introduced in 2012 have never been breached suggests such pressures have so far been well managed. Debt of SOEs remains an important contingent liability to the sovereign. Debt of the nine major SOEs amounted toR743 billion (18.2% of GDP) at end-March 2016, of which R280 billion was subject to government guarantees. In addition, the government provides guarantees on electricity prices to independent power producers complementing Eskom’s electricity generation.”

Additional reporting by Reuters