Fitch Ratings agency on finmin Godongwana’s Budget Speech 2022

Fitch Ratings agency has been closely monitoring South Africa's economic landscape, particularly after the recent budget announcement by Finance Minister Godongwana. Jan Friederich, Head of Europe, Middle East and Africa Sovereign Ratings at Fitch Ratings, shared insights on the country's financial outlook in an exclusive interview with CNBC Africa's Godfrey Mutizwa. In December, Fitch Ratings changed South Africa's outlook to stable with a BB-minor rating, signaling a positive shift in the country's economic performance. The recent budget provided unexpected revenue performance, leading to improvements in fiscal metrics such as a lower fiscal deficit and debt levels. These positive developments have been viewed favorably from a rating perspective. However, Jan Friederich highlighted that despite the encouraging budget outcomes, South Africa still faces several risks and uncertainties. The country's rising debt trajectory and challenges in the budget assumptions present ongoing concerns for Fitch Ratings. Although the budget did not prompt a negative outlook shift, there are looming risks that could impact South Africa's economic future. Maintaining a sustainable debt level is crucial to avoid potential negative rating actions in the future. Moreover, the social and growth challenges in South Africa continue to pose significant hurdles to long-term economic stability. Jan Friederich emphasized the need for comprehensive reforms to address structural obstacles to growth, including labor market issues and energy supply constraints. While the government has proposed reforms, their pace and ambition may not be sufficient to drive substantial improvements in growth performance. Jan Friederich underscored that sustainable growth requires robust measures beyond superficial changes and incremental progress. Additionally, the political landscape in South Africa is evolving, with increased pressure on the government to make bold decisions amid changing political dynamics. The recent municipal elections signaled a potential shift towards more decisive policymaking, driven by the risk of losing political power. This heightened political ambition could spur the government to take more proactive steps towards addressing economic challenges and implementing impactful reforms. Despite the improved fiscal metrics in the budget, concerns remain regarding the trajectory of South Africa's debt levels. The government's projections indicate a potential peak in debt by 2025-2026, contingent upon effective cost containment and expenditure management. Maintaining discipline in public sector wages, controlling state-owned enterprise support, and upholding expenditure ceilings are critical factors in stabilizing debt levels. However, uncertainties persist regarding the sustainability of these measures amidst growing social demands and economic pressures. South Africa's ability to navigate these challenges will be instrumental in determining its long-term financial health and credit rating outlook.