(Bloomberg) -- South Africa avoided further slippage in its credit rating after Fitch Ratings retained a stable outlook on the nation’s debt, citing a moderate improvement in economic reforms and slower growth in the nation’s debt.
“We expect the government of national unity, in which the African National Congress is the largest party, to continue the reform program, which will contribute to a modestly increasing real GDP growth,” Fitch said in a statement Friday. “However, we do not think the reforms will significantly raise South Africa’s low growth potential, which we estimate at 1%.”
The agency kept the nation’s foreign currency long-term rating at BB-, three notches below investment grade.
Business and investor confidence has improved since the ANC formed a broad coalition with centrist rivals after losing its parliamentary majority in May 29 elections, helping the rand and South Africa’s bonds rally. Members of the new government have committed to fast-tracking structural reforms and delivering stronger economic growth.
Fitch forecasts consolidated government debt rising to 76% of gross domestic product in the 2024 financial year, 77.8% in 2025 and 78.0% in 2026.
“This is a slower pace than we anticipated in our January 2024 review,” it said, citing Finance Minister Enoch Godongwana’s decision to withdraw 150 billion rand ($8.5 billion) from the country’s Gold and Foreign Exchange Contingency Reserve Account at the central bank to help pay down debt.
This is like to help reduce South Africa’s main budget deficit in 2023-24 to 4.6% of gross domestic product, slightly better than the 4.7% forecast by the Treasury in February.
Fitch though cautioned that the government would have to continue financial support of embattled state-owned logistics utility Transnet SOC Ltd. The ratings company has penciled in assistance to the tune of 50 billion rand this year and next.
Transnet, suffering from years of mismanagement, underinvestment and vandalism, reported 2023-24 losses of 7.3 billion rand. Godongwana, who’s been trying to take a tougher line on supporting troubled state-owned enterprises, may provide an update when he delivers his medium-term budget statement on Oct. 30.
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Zoe Schneeweiss.
©2024 Bloomberg L.P.