File picture: Alessandro Garofalo/Reuters

Fitch has affirmed South Africa’s long-term foreign and local currency debt ratings of ‘BB+’ with a stable outlook. 

Fitch has cited that despite the country’s credit strengths of deep local capital markets, favourable government debt structure and a track record of fairly prudent fiscal and monetary policy, South Africa’s ratings continue to be weighed down by:

Low potential economic growth; Sizable contingent liabilities; and deteriorating governance of state-owned companies (SOCs).

According to the rating agency, “the March 2017 Cabinet reshuffle that triggered the downgrade of South Africa's ratings is likely to undermine governance of SOCs, weaken fiscal consolidation and reduce private sector investment as a result of weaker business confidence”.

The rating agency is also of the view that “while efforts to improve the SOC governance framework will continue, implementation decisions, for example on appointments of senior SOC management will hamper these efforts and could lead to weaker financial positions of SOCs and higher contingent liabilities for the government”.

The government noted the decision by Fitch and expressed gratitude to all the stakeholders who participated in the meetings with the rating agency and ensured that the country is not downgraded further.

Nonetheless, the government emphasized that fiscal consolidation remained firmly on track and government’s efforts remain focused on improving the growth trajectory and policy perceptions. Minister Gigaba is currently re-engaging with the private sector to make sure that the joint work of government, business, labour and the civil society continues and that the pledges made thus far are fulfilled.