Bailout for Transnet?
OUTLOOK: RATING AGENCY FLAGS OPERATIONAL, GOVERNANCE WOES
‘Confidence in South Africa’s credit prospects is low.’
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 following government’s decision to grant Transnet a R47 billion guarantee facility in December.
The rating agency also flagged Transnet’s financial, operational and governance woes as other key barriers to growth.
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 recently affirmed South Africa’s sovereign credit rating at BB- and kept the outlook stable. It noted that structural impediments to growth will continue to undermine the domestic economy over the medium term. Fitch has kept the credit rating at subinvestment grade since 2017.
The agency forecasts real gross domestic product (GDP) growth will accelerate to 0.9% in 2024 and 1.3% in 2025, from an estimated 0.5% in 2023, little changed from before.
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, said Jee-A van der Linde, senior economist at Oxford Economics Africa.
“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 2024 financial year and 4.6% in the following financial year, 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.
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 said Oxford
Economics Africa agreed 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.