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ERRATUM : We expect S&P Global and Fitch to affirm their credit ratings and maintain a stable outlook, and Moody’s to affirm its rating but revise the outlook to stable from negative.
- Moody’s Investor Services (Ba2, negative outlook) and S&P Global Ratings (BB-, stable outlook) will release their credit rating reviews on 1 April and 20 May, respectively. Fitch Ratings (BB-, stable outlook) does not provide its release dates as its analysts are based outside the European Union, but its review is due around the same time. The agencies assess several factors that currently point to the current ratings being maintained.
- Macroeconomic reforms: Recently announced policies aimed at boosting investment and economic growth are encouraging, but the pace of reform is still slow. Successful bidders for new renewable energy generation under bid window 5 of the Renewable Energy Independent Power Producer Programme (REIPPP) have been licensed. Bid window 6 will be finalised in 2022. The limit for embedded power generation has been raised to 100 MW, while the IPPs will be licensed to directly supply power to the national grid. Transnet will license private rail operators to utilise the national rail network. At the same time, the establishment of Transnet National Ports Authority as a separate entity aims to improve the management of national ports, with a particular focus on the strategically important Durban port. At the same time, the release of more internet bandwidth has been concluded, although the outcome could be overturned by a court challenge by one of the successful bidders. The recent investment conference, a sequel to the ones held before the pandemic disrupted the economic mood, secured more significant investment pledges. However, the rollout of the investments and their impact on the economy will take some years to materialise. The corporate tax rate reduction to 27% from 28% was a positive move, but it needs to be coupled with more significant measures. Overall, the reform measures are encouraging, but broader steps to unlock bottlenecks and improve efficiency in the network industries need to be implemented.
- Economic growth: The local economy was buoyed by the favourable global environment in 2021, benefitting from global demand and high commodity prices. Domestic demand growth was relatively subdued, with several once-off and persistent factors disrupting its momentum. Although most operations were quickly restored, the July riots and looting negatively impacted local supply chains. Significant power shortages have proven to be a longer-lasting hindrance to the local recovery. We expect economic growth to ease from 4.9% in 2021 to 2.2% in 2022 and to average 1.6% per annum between 2022 and 2025, with the risks to domestic growth remaining to the downside. Fitch Ratings estimates the average growth rate of BB-rated sovereigns at 4%1 per annum between 2020 and 2022.
- The fiscal position: The government remains committed to reducing the budget deficit and containing the growth in the public debt stock. Stronger economic growth and higher-than-previously projected revenue collections help to improve the fiscal ratios over the Medium-Term Expenditure Framework period (MTEF − 2022/23 to 2024/25). However, expenditure targets are likely to be missed, with the wage bill, debt service costs, and higher social spending the main functions that will likely push aggregate expenditure above the current targets.