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

As matriculants celebrate passing with flying colours, South Africa has once again received an unimpressive report card from Fitch.

The global ratings agency assigned SA a BB Rating on Friday, maintaining a ‘stable outlook.’

A BB rating signifies a country’s elevated vulnerability to default risk amid adverse changes in business or economic conditions over time. However, the level also recognises the existence of business or financial flexibility, which supports the servicing of debt.

According to Fitch, load shedding and logistical challenges had significantly affected South Africa’s economic growth.

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

‘No surprise’

Weighing in, independent economic analyst Professor Bonke Dumisa said the rating was no surprise.

“Fitch’s reaffirmation of a BB Rating for South Africa is not surprising, it is reasonable given our serious load shedding problems and the many transport logistics challenges, which have seriously crippled the South African economy,” Dumisa told The Citizen.

Dumisa explained that Fitch’s BB rating formed part of the agency’s sub-investment grading, popularly known as “junk status.”

“The major negative implication of junk status is that we pay higher interest rates because we’re considered ‘less creditworthy’ than countries which are in higher investment grades,” Dumisa explained.

ALSO READ: Critical but stable? What Fitch’s latest rating means for you

A rock and hard place

According to the economic analyst, Fitch is not the first ratings agency to assign SA a junk status – Standard & Poors (S&P) and Moody’s had done the same.

Ratings agencies may decide, upon assessing an entity’s creditworthiness, whether to assign a positive or negative outlook. Fitch’s BB rating affirmed SA’s stable outlook.

Dumisa said the negative or positive outlook assigned by rating agencies didn’t make much of a difference to a country’s sub-investment grading.

Likening the outlook to being stuck between a rock and a hard place, Dumisa said: “You are in prison; should we place you in C-Max Prison or Medium Prison?”

“We cannot expect any credit rating improvements in the near future until our load shedding problems and [logistics challenges] have been effectively dealt with.”

ALSO READ: ‘Government must fix its debt’

Noted

The National Treasury has noted Fitch’s rating, saying government would focus on raising GDP growth by improving the provision of electricity and logistics and enhancing the delivery of infrastructure.

“Fiscal policy continues to support this approach by stabilising debt and debt-service costs,” National Treasury said in a statement.

“Government reiterates that fiscal consolidation will be implemented through spending reductions, efficiency measures across government and moderate tax revenue measures.”