Fitch Ratings has affirmed South Africa's Long-Term Foreign- and Local-Currency Issuer Default Ratings at 'BBB-' and 'BBB', respectively.
“The 'BBB-' rating reflects low trend GDP growth, significant fiscal and external deficits, and high debt levels, which are balanced by strong policy institutions, deep local capital markets and a favourable government debt structure,” said the ratings agency.
Fitch said political risk had increased since the previous rating review in December 2015, although it is not out of line with 'BBB' peers.
“The dismissal of two finance ministers in a week in December, and subsequent tensions between the new finance minister Pravin Gordhan and other parts of the government have raised questions about the commitment of the government to sustained fiscal consolidation and prudent governance of state-owned enterprises,” read Fitch statement.
Fitch views political risks mainly in terms of the impact on the economy and public finances.
The Constitutional Court ruling on President Jacob Zuma’s Nkandla saga had contributed to further strains on the country’s outlook. However, they stated that institutions had proven to be strong.
“However, Fitch expects the governing African National Congress (ANC) may lose some support in local elections on 3 August 2016. Tensions within the ANC are also increasing ahead of the conference in December 2017 to elect Zuma's successor as ANC president,” added Fitch.
The ratings agency also said trend GDP growth remained low compared to that of its peers, with five-year average GDP growth at just 2.2 percent compared to a 'BBB' median of 3.3 percent. The agency also warned of challenges with deficits.
“Fiscal deficits have remained high, with a deficit of 3.9 percent of GDP in the fiscal year ended 31 March 2016, but the government in the FY17 budget introduced tax measures to raise revenue by 0.4% of GDP in 2016/17.”