Fitch maintains South Africa’s credit rating at investment grade
One of the influential financial rating agency Fitch, on Wednesday affirmed South Africa’s investment grade credit rating and maintained its outlook on stable, but warned that political and growth concerns posed a risk.
South Africans can breathe a sigh of relief as the country has now been reprieved by all three of the big credit rating agencies.
Fitch Ratings has held South Africa at investment grade, holding the BBB- rating, as many analysts and economists expected. The group also held the country’s stable outlook, which comes as a surprise, with many expecting an outlook revision to negative.
The agency said the rating "reflects low trend GDP growth, significant fiscal and external deficits, and high debt levels". However, it said these were balanced by "strong policy institutions, deep local capital markets and a favourable government debt structure".
It warned also that political risk had increased since the previous rating review in December, citing the dismissal of finance ministers in December and tension between Finance Minister Pravin Gordhan and other parts of government, which "have raised questions about the commitment of the government to sustained fiscal consolidation and prudent governance of state-owned enterprises".
The country plunged into economic turmoil in December after President Jacob Zuma changed his finance minister twice in a week. It has since avoided downgrades from Standard & Poor's and Moody's, giving policymakers more time to implement reforms to grow the economy, estimated to grow by less than 1 percent this year.
Fitch is the last to make a decision on country’s credit rating for this period, with the focus now moved to the next round at the end of the year.
It will be looking to see the promised economic reforms take effect to pull the country back from economic decline, with the very real possibility that a downgrade will happen at the end of the year if these fail.
Its affirmation comes after S&P delivered a stay of execution on Friday evening, affirming SA's investment-grade rating even though it had it on negative outlook. It also follows Moody's decision in May to affirm SA's rating, following a two-month review process.
Gross Domestic Product (GDP) and The Rand
Meanwhile Statistics South Africa confirmed on Wednesday that GDP contracted by 1.2% on a seasonally adjusted and annualized basis in the first quarter of the year, a much steeper contraction than had been expected.
The rand had gained as much as 5 percent against the dollar since Friday, reaching 14.7995 on Tuesday in a relief rally prompted by S&P's decision to maintain South Africa's investment grade BBB- rating.
The currency, however, gave back some of those gains on Wednesday to trade at 14.9175/dollar by 06h50 GMT, down 0.1 percent from the previous session's close.
Traders saw a risk to the currency from Statistics South Africa's GDP data due out at 09h30 GMT, with economists polled by Reuters expecting the economy to have shrunk 0.1 percent on a quarter-on-quarter annualised basis in the first three months of the year.