Fitch puts South Africa on ‘negative’ outlook

16 Jun 14
Fitch has downgraded its outlook for South Africa from stable to negative, warning that the country’s persistent budget deficit was leading to rising public indebtedness.

By Judith Ugwumadu | 16 June 2014

Fitch has downgraded its outlook for South Africa from stable to negative, warning that the country’s persistent budget deficit was leading to rising public indebtedness.

It cited long strikes in the platinum sector and added that manufacturing output fell sharply, in a note issued last week.

Africa’s most developed economy saw its gross domestic growth contract by 0.6% in the first quarter of this year, Fitch noted, adding that the country’s economic outlook had ‘deteriorated’.

The agency subsequently downgraded South Africa’s credit rating to ‘BBB’. It also cut South Africa’s growth forecast to 1.7% this year, from 2.8% in predicted in its December 2013 rating review.

‘South Africa’s persistent budget deficit is leading to rising public indebtedness. Fitch expects moderate slippage in the consolidated government deficit to 4.2% in 2014/15 from 4% owing to the growth shock and platinum strike,’ the note added.

‘Following its election victory in May with 62% of the votes, the African National Congress government faces a challenging task to raise the country’s growth rate and improve social conditions, which has been made more difficult by the weaker growth performance and deteriorating trends in governance and corruption.’

Fitch suggests an acceleration of structural reforms in South Africa, such as those set out in the comprehensive National Development Plan.

By 2030, the NDP is intended to eliminate poverty and reduce inequality. To achieve these goals, the government said that it would grow an inclusive economy, build capabilities, enhance the capacity of the state and promote leadership and partnership throughout society.

 

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