Fitch Ratings: government will give Transnet even more money

Fitch Ratings foresees further fiscal support for Transnet from government through capital injections or a debt transfer amounting to R50 billion over the next two fiscal years after government’s decision to grant Transnet a R47 billion guarantee facility in December.

Fitch made this prediction when it announced its credit rating and outlook for South Africa as unchanged, but this is not good news as it shows that confidence in South Africa’s credit prospects is low, illustrated by credit ratings agencies’ unfavourable assessments of the economy and its creditworthiness.

Fitch Ratings affirmed South Africa’s sovereign credit rating at BB- and kept the outlook stable on Friday and noted that structural impediments to growth will continue to undermine the domestic economy over the medium term. Fitch has kept the credit rating at sub-investment grade since 2017.

The agency forecasts real gross domestic product (GDP) will accelerate to 0.9% in 2024 and 1.3% in 2025, from an estimated 0.5% in 2023, little changed from before and said it believes load shedding will become less intense in 2024 and 2025, but not vanish altogether.

ALSO READ: Fitch keeps South Africa’s rating unchanged, with load shedding and Transnet a concern

Fitch seemingly also has no plans to change SA rating

In addition, given Fitch’s latest rating assessment and considering South Africa’s dull medium-term economic growth outlook, the rating agency seemingly has no plans to change the country’s rating any time soon, Jee- A van der Linde, senior economist at Oxford Economics Africa, says.

“Fitch pretty much reiterated what it said during its previous rating update, that it sees a constrained economic growth environment, high levels of government debt and a modest path of fiscal consolidation. However, Fitch made notable revisions to gross loan debt and expects it will reach 83.2% of GDP in the 2025 financial year.”

Meanwhile, Fitch forecasts the consolidated budget deficit will remain wide at 4.8% of GDP in the financial year of 2024 and 4.6% in the following financial 2025, driven by further wage increases in the public service and elevated social spending.

Therefore, the rating agency expects general government debt to reach 83.2% of GDP in the financial year of 2025, from an estimated 76% of GDP in the financial year of 2023, well above the anticipated 2023 ‘BB median’ of 52.2% of GDP.

ALSO READ: ‘It’s like deciding whether SA is in C-Max or medium prison’ – economist on SA’s Fitch rating

ANC losing majority not such a big issue

Fitch also noted the possibility of the ANC losing its majority in the general election but said this is unlikely to result in major changes in economic policy. Van der Linde says Oxford Economics Africa agrees with this and do not expect a material change in the near-term economic growth trajectory, irrespective of the various coalition permutations post-election.

“However, we concede the risk of likely negative market reaction to certain election outcomes. Ultimately, our views have not changed and we anticipate ‘more of the same’. Not enough targeted spending translated into the improvement of livelihoods, while an acute skills deficit together with the effects of years of neglecting critical infrastructure maintenance imply that widespread service delivery failure is unlikely to reverse course.”

The update from Fitch comes ahead of the 2024 national budget and after the 2023 mini-budget rendered a grim picture of South Africa’s finances.

Finance minister Enoch Godongwana is set to deliver his budget speech on 21 February and Oxford Economics Africa anticipates further fiscal slippage as government scrambles to rein in spending amid inadequate revenue growth.

“Due to South Africa’s weakened macroeconomic fundamentals and lousy fiscal position, negative credit rating actions are considered more likely than positive revisions over the near term,” Van der Linde says.