Fitch Affirms South Africa's Long-Term Foreign-Currency Issuer Default Rating at ‘BB-’

Strategic Insights -

The ratings agency Fitch has affirmed South Africa's long-term foreign-currency issuer default rating at 'BB-', citing weak economic growth prospects, rising government debt, and high poverty and inequality as the country's main credit constraints. Despite these challenges, Fitch noted that South Africa's favourable debt structure, strong institutions, and credible monetary policy framework provide some support to the ratings. The agency projects that South Africa's economy will expand by only 1.2% annually between 2025 and 2027, well below the 3.7% median growth forecast for peers in the same ratings category.

Key Takeaways:

  • Fitch has affirmed South Africa's long-term foreign-currency issuer default rating at 'BB-' with a stable outlook, citing weak economic growth prospects, rising government debt, and high poverty and inequality as the country's main credit constraints.
  • The agency projects that South Africa's economy will expand by only 1.2% annually between 2025 and 2027, well below the 3.7% median growth forecast for peers in the same ratings category.
  • Government debt rose to 78.1% of GDP in 2024 and is forecast to climb further, reaching nearly 80% by 2027, far above the peer median of 54%.
  • Fitch noted that fiscal flexibility is hampered by a rigid expenditure structure, with wages and interest payments consuming almost half of government spending.
  • Transnet remains a significant risk to the fiscus, with continued financial losses and reliance on government guarantees, with contingent liabilities standing at more than R600 billion, or 9.1% of GDP, by March 2025.
  • Fitch pointed to South Africa's favourable debt structure, with long maturities and a low share of foreign-currency borrowing, as well as resilient financing conditions underpinned by a deep domestic investor base and liquid rand markets.
  • Inflation is expected to remain under control, rising modestly to 4.2% by end-2025 before easing in subsequent years.
  • The National Treasury's economic growth strategy will continue to focus on maintaining macroeconomic stability to reduce living costs and grow investment, executing reforms to promote a more dynamic economy, building state capability in core functions, and supporting growth-enhancing public infrastructure investment.

Statistics:

  • South Africa's economy is expected to expand by 1.2% annually between 2025 and 2027.
  • Government debt rose to 78.1% of GDP in 2024.
  • Fiscus contingent liabilities stand at more than R600 billion, or 9.1% of GDP, by March 2025.
  • Inflation is expected to rise to 4.2% by end-2025.
  • The current account deficit is projected at less than 1% of GDP this year.
  • Government plans to invest over R1 trillion in infrastructure over the medium term.
  • Peer median growth forecast for 2025-2027 is 3.7%.

Sources:

  • Fitch Ratings
  • National Treasury of South Africa
  • Government of South Africa
  • World Bank