Fitch’s comment on South Africa’s budget review strengthens downgrade fears

By bne IntelliNews October 23, 2015

Fitch, which is the only agency with a negative outlook on South Africa’s sovereign rating, has voiced scepticism about the government’s ability to stabilise public finances in the face of weak growth, strengthening fears of a downgrade.

Fitch’s comment follows Finance Minister Nhlanhla Nene’s Medium Term Budget Policy Statement (MTBPS) on October 21, which unveiled a significant reduction in medium-term GDP growth outlook coupled with an increase in budget deficit and debt targets.

Fitch pointed out that the weaker growth outlook will reduce gross tax revenues by a cumulative ZAR35bn ($2.6bn) over three years, impacting on projections for the budget deficit and government debt-to-GDP ratio, which the government did not seek to offset with fiscal policy tightening.

“Growth and the outlook for the public finances will form an important part of Fitch's next review of South Africa's sovereign ratings, scheduled for 4 December,” the agency said.

In June, Fitch decided against a downgrade of South Africa’s rating, providing some relief for the country’s struggling economy, but warned that weak growth potential and wide twin deficits continue to threaten credibility. Markets had feared a downgrade, as the agency had warned that a cut was possible, depending on economic growth and debt prospects.

Fitch rates South Africa at BBB, two notches above junk, at the same level as Moody’s Baa2 assessment, which however has a stable outlook. S&P rates the country at BBB-, the lowest investment grade, with a stable outlook, and has said that it does not expect a change in the ratings in the next two years.

Related Articles

Russia's Rosneft sets foot in Mediterranean with $1.125bn Eni deal

Russia's largest oil producer state-controlled Rosneft has acquired 30% in the largest natural gas field in the Mediterranean from Italian Eni, the company announced on October 9. Rosneft that ... more

PetroSA, Rosgeo sign $400mn oil and gas exploration agreement for South Africa

South Africa's national oil company PetroSA and Rosgeo, the geological exploration company of the Russian Federation, have signed an agreement on a $400mn oil and gas development project in South ... more

South Africa’s MTN to invest $350mn in Iranian broadband

South Africa’s MTN said it has agreed, on a non-binding and preliminary basis, to invest an initial $350mn into Iranian fixed broadband provider Iranian Net. The investment will give ... more