Ratings agency Fitch on Thursday kept South Africa’s sub-investment grade credit rating unchanged at BB+ with a stable outlook.
SA’s ratings are weighed down by low growth potential, sizable government debt and contingent liabilities, and the risk of rising social tensions due to extremely high inequality, Fitch said in a statement.
The ratings are supported by strong institutions, a favourable government debt structure, deep local capital markets and a healthy banking sector, Fitch added.
“GDP growth was weaker than expected in 1H18, but Fitch expects a recovery of investment after a prolonged period of contraction to drive GDP growth to 2.1% in 2019 and 2020 from 0.6% in 2018,” Fitch said.
“The president in September announced a package of measures to stimulate growth, focused on structural reforms as well as reprioritizing expenditure. A revised mining charter has been approved, lowering uncertainty for the sector, but raising regulatory costs compared with the previous regime.”
Fitch also praised measures to strengthen the telecoms sector, raise competition, reduce bulk transport costs and boost tourism by easing visa requirements.
“However, in Fitch’s view the measures will take time to implement and are not sufficiently far-reaching to raise medium-term potential growth significantly. As a result, potential growth is expected to remain just below 2%. This is well below the historical ‘BB’ category median of 3.4% and only just above population growth of 1.6%,” the statement said.
S&P has also rated South Africa at sub-investment grade, while Moody’s rating at Baa3, one notch above sub-investment grade.