The challenges to South Africa’s credit outlook were highlighted by President Cyril Ramaphosa’s state-of-the-nation address, Fitch Ratings said.
While Ramaphosa promised progress in his speech on Thursday, he offered only partial detail on key policy areas, including stabilizing the electricity sector, improving public finances, accelerating economic growth and land reform, the ratings company said in an emailed statement on Friday.
Ramaphosa announced changes to the nation’s electricity industry to tackle energy shortages and reduce reliance on debt-stricken state power utility Eskom, including increased participation of private producers.
He warned the nation’s debt trajectory is unsustainable and said Finance Minister Tito Mboweni will elaborate on measures to cut spending when he delivers his budget speech on 26 February. The government is in talks with labour unions about reducing the state wage bill, he said.
However, with the current wage settlement only expiring in 2021, Fitch said it doesn’t expect any clear commitments on reducing the salary bill relative to previous plans.
The impact of growth-enhancing measures including the auction of additional broadband spectrum will be limited at first, the company said.
Fitch cut South Africa’s credit rating to junk in April 2017 after a late-night cabinet reshuffle in which the finance minister was removed.
The company changed the outlook on its BB+ rating to negative in July last year, citing the heightened difficulty of stabilizing government debt over the medium term and the downside risks to South Africa’s economic growth potential.
“The difficulty of addressing competing priorities of reducing inequality, raising growth, improving public finances and containing populism and in-fighting within the African National Congress will continue to limit the government’s ability to take more decisive steps to accelerate growth,” Fitch said.