Fitch warns SA’s slow rate of vaccine roll-out poses risk to economy
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JOHANNESBURG - FITCH Ratings Agency on Friday warned that the Covid-19 pandemic would continue to pose risks for South Africa’s economy well into 2022 as vaccine roll-out was proceeding slowly.
Fitch said South Africa’s medium-term growth would remain low at less than 2 percent, a key rating constraint, complicating fiscal consolidation as reforms remained limited in scale and slow in implementation.
It said this will also limit the government's ability to contain the debt-to-GDP ratio.
“The government has secured enough doses to inoculate the adult population, but most will arrive only in the second half of 2021,” Fitch said.
“We assume that the economic fall-out of any new waves will be more limited than last year, but it could still weigh on public finances.”
Fitch and S&P Global on Friday both maintained South Africa’s sovereign credit ratings status below investment grade with a negative outlook. This was a week after Moody’s skipped its review of South Africa’s credit rating.
Fitch said its 'BB-' rating was constrained by high and rising government debt, low trend growth and exceptionally high inequality that will complicate consolidation efforts.
The ratings agency expects the government debt to rise from 82.5 percent of gross domestic product (GDP) in the 2020/21 financial year to 87.1 percent in 2022/23, though lower than the previous forecast of 94.8 percent.
Fitch also said the negative outlook reflected continued substantial risks to debt stabilisation despite the better than expected fiscal out turns in the fiscal year ending March 2021.
It said the government no longer emphasised sticking to expenditure ceilings in the 2021 budget, and building political support for fiscal consolidation remained challenging.
Fitch said a higher increase in public sector wages was possible given that the trade unions demand a rise by inflation plus 4 percent, jeopardizing fiscal consolidation plans.
However, Fitch revised upwards South Africa's economic growth saying it will rebound to 4.3 percent in 2021 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,” it said.
Meanwhile, S&P Global said structural constraints, a weak pace of economic reforms and a slow vaccination roll-out remained among the key obstacles that would hold back growth in the medium-term.
In reply, the National Treasury acknowledged the pressures the country’s credit ratings face and said the government remained committed to addressing them by fast-tracking growth-enhancing strategies.
“As highlighted in the 2021 Budget, the government’s fiscal strategy puts South Africa on course to achieve a sufficiently large primary surplus to stabilise debt,” it said.
“Over time, debt stabilisation will reduce borrowing costs and the cost of capital, attracting investment that can support the economy.”
North West Business School’s Professor Raymond Parsons said the ratings agencies “decision to leave South Africa’s credit rating unchanged” would give the country more time to get its economic house in order.
“The immediate priorities for South Africa remain to ensure a successful vaccine rollout, stabilise its public finances, put its state-owned enterprises on a sound financial footing and provide energy security,” Parsons said.