South Africa’s ratings are constrained by low growth potential, high and rising government debt, large contingent liabilities and the risk of rising social tensions due to extremely high inequality, Fitch ratings agency said on Thursday.
Fitch, which has had South Africa placed in a sub-investment grade, said it had kept its rating of the country steady but with a negative outlook.
Ironically, the local rand currency reached a four-month high against the US dollar on Thursday following the rating agency’s announcement.
While Fitch junked South Africa’s credit rating some time ago, the decision to hold off pushing it further into sub-investment grade was welcome news, according to local economists here.
In spite of this, the economists added that the ratings remained supported by strong macroeconomic institutions, a favourable government debt structure and deep local capital markets.
Fitch’s rating is currently held at BB+ or one notch below junk level, with a negative outlook. The downgrade could be triggered if the South African government failed to control its debt, the agency warned.
South Africa’s National Treasury has acknowledged Fitch’s position, saying that it “remains committed to the stabilisation and improvement of its fiscal position”.
NM/jn/APA