CAPE TOWN, June 1 – Fitch Ratings on Thursday kept South Africa’s long-term foreign and local currency bond issue at BB+ with a stable outlook, prompting the rand to rally and briefly dip below 13 to the dollar.
Fitch also affirmed South Africa’s country ceiling at BBB-.
It said South Africa’s ratings were weighed down by low trend Gross Domestic Product (GDP) growth, sizeable contingent liabilities and deteriorating governance. On the other hand, they are supported by deep local capital markets, a favourable government debt structure and a track record of fairly prudent fiscal and monetary policy.
Fitch noted Finance Minister Malusi Gigaba’s assurances that the National Treasury remains committed to fiscal consolidation, and said it was therefore unlikely that government’s expenditure ceilings would raise despite rhetoric of radical economic transformation from the ruling party.
But the ratings agency expressed concern about the running of state-owned enterprises in the wake of President Jacob Zuma’s far-reaching Cabinet shake-up that saw Pravin Gordhan make way for Gigaba.
“A Cabinet reshuffle at the end of March, which triggered an earlier downgrade of South Africa’s ratings, is likely to undermine governance of state-owned enterprises (SOEs), weaken fiscal consolidation and reduce private sector investment as a result of weaker business confidence.
“While efforts to improve the SOE governance framework will continue, implementation decisions, for example on appointments of senior SOE management, will hamper these efforts and could lead to weaker financial positions of SOEs and higher contingent liabilities for the government.”
The statement came a day after Cabinet ministers ordered the Eskom board to remove Brian Molefe as CEO of the public company that holds the bulk of nearly R400 billion in government guarantees to state-owned enterprises. Fitch said given the poor finances of parastatals there was a significant risk that some of their debt would land on “the sovereign balance sheet”.
Fitch warned that plans for Eskom to build new nuclear plants could raise government exposures considerably but noted that a recent court judgment declaring the determination to proceed with procurement invalid, had set back the new nuclear build considerably.
On April 7, a week after the reshuffle, Fitch downgraded South Africa’s unsecured foreign-currency and local-currency bonds to non-investment grade — or junk status.
National Treasury expressed relief at the ratings agency’s latest decision and thanked all officials who had participated in talks with Fitch and helped to avert a further downgrade.
– African News Agency (ANA)