Fitch reaffirms SA's sub-investment grade status

Fitch has reaffirmed SA’s status at sub-investment grade with a stable outlook.

In a crunch week for the three major credit ratings agencies‚ Fitch’s outlook comes a day before S&P Global Ratings and Moody’s are scheduled to make announcements. Fitch is the only of the three ratings agencies that already has SA local and foreign debt in junk territory.

In a statement on Thursday‚ Fitch said: “SA’s ratings are weighed down by low trend growth‚ sizeable government debt‚ and contingent liabilities and deteriorating governance standards.”

Despite this‚ it added: “These weaknesses are balanced by a favourable government debt structure‚ deep local capital markets‚ and a flexible exchange rate that helps absorb external shocks.”

This affirms that while SA has a weaker fiscal outlook and consequent faster pace of debt accumulation‚ potential fiscal consolidation measures after the ANC’s elective conference in December could work in SA’s favour‚ while GDP growth is also expected to recover more strongly.

Fitch downgraded SA to BB+ from BB- on both foreign and local currency debt in early April after a Cabinet reshuffle that saw finance minister Pravin Gordhan dismissed.

National Treasury responded to Fitch’s outlook‚ saying: “Since April 2017‚ when Fitch downgraded the country to ‘junk status’‚ the country has seen a recession‚ borrowing has increased and revenue has under-performed. Therefore‚ government and the country collectively cannot afford to become complacent about these rising risk exposures.”

Treasury added that concluding critical policies remains pivotal for creating certainty‚ particularly in terms of restoring confidence. “By not downgrading the country further‚ Fitch is providing SA with an opportunity to address issues that can lead to an upward revision to the ratings.”