Global ratings agency Fitch said on Friday that South Africa is still very much susceptible to a credit ratings downgrade in 2024.
The country remains vulnerable due to negative economic growth and government’s debt burden.
Fitch has kept SA’s credit rating unchanged at BB- and said that our economic outlook looked stable, but noted that South Africa’s macroeconomic environment is not on the most stable ground.
The agency said that SA’s long-term foreign currency rating is also hampered and constrained by weakened and poor gross domestic product (GDP) growth.
“South Africa's 'BB-' IDR is constrained by low real GDP growth, a high level of inequality, a high and rising government debt-to-GDP ratio, and a modest path of fiscal consolidation,” Fitch said in a statement.
Continued load shedding and logistical issues at Transnet has also hampered GDP growth.
“Growth is hampered by power shortages that are expected to continue in the near to medium term, although at a lower magnitude than in recent months, and by a struggling logistic sector. The ratings are supported by a favourable debt structure with long maturities and mostly local currency-denominated, strong institutions, as well as a credible monetary policy framework”.
It should be noted that Fitch did forecast that real GDP growth will accelerate to 0.9% in 2024 and 1.3% in 2025, from an estimated 0.5% in 2023.
A WEAK RAND
The rand’s position against the dollar remained on a similar footing as last week and showed no growth against the dollar and other foreign currencies.
The rand was trading at R19.19 to the dollar at 11.15am on Monday.
The rand was trading at R20.91 to the euro and R24.38 to the pound.
According to Nedbank’s weekly economic monitor, the rand’s weakness and pressure against the dollar could be attributed to the US delaying interest rate cuts. The rand was also impacted negatively by continued attacks in the Red Sea.
“Last week, the rand depreciated further as the US dollar firmed on expectations of delayed interest rate cuts by the Fed. The local unit was also weighed down by the ongoing tensions in the Middle East, which have bolstered demand for safe-haven currencies, hitting emerging-market currencies across the board. Over the past week, the currency weakened by 1.66%, 0.87% and 0.94% against the dollar, euro, and pound, respectively,” the bank said.
THE RAND MAY WEAKEN BY THREE PERCENT
In terms of the rand and its prospective growth in 2024, the South African currency may weaken more in the year ahead, according to analysts.
Nolan Wapenaar and Peter Armitage, Chief Investment Officers at Anchor Capital said that domestic factors should improve into 2024.
The analysts said on Monday that there is a large amount of uncertainty with the national election likely to keep markets on edge for the first half of 2024.
Both investment officers predict that against this backdrop, their models indicate that the rand will weaken by three percent over the year ahead.
Looking forward, both analysts think the rand’s prospects have deteriorated, and they see the rand trading in the R18.75 to R20 range against the dollar for the first quarter of 2024.
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