Fitch warns slow AS vaccine rollout poses risk to economy


Through Siphelele Dludla 1h ago

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JOHANNESBURG – Rating agency FITCH warned on Friday that the Covid-19 pandemic would continue to pose risks to the South African economy until 2022, as vaccine roll-out progressed slowly.

Fitch said South Africa’s medium-term growth will remain weak at less than 2%, a key rating constraint, complicating fiscal consolidation as reforms remain limited in scope and slow to implement.

He said it would also limit the government’s ability to contain the debt-to-GDP ratio.

“The government has secured enough doses to immunize the adult population, but most will not arrive until the second half of 2021,” Fitch said.

“We assume that the economic fallout from any new wave will be more limited than last year, but it could still weigh on public finances.”

Both Fitch and S&P Global held South Africa’s sovereign credit rating below the investment rating on Friday with a negative outlook. It was a week after Moody’s skipped its review of South Africa’s credit rating.

Fitch said his “BB-” rating was constrained by high and growing public debt, low trend growth and unusually high inequalities that will complicate consolidation efforts.

The rating agency expects public debt to fall from 82.5% of gross domestic product (GDP) in fiscal year 2020/21 to 87.1% in 2022/23, although below the previous forecast of 94.8%.

Fitch also said the negative outlook reflected continued substantial risks to debt stabilization despite better-than-expected fiscal results in the fiscal year ending March 2021.

He said the government was no longer focusing on meeting spending ceilings in the 2021 budget and building political support for fiscal consolidation remained difficult.

Fitch said a higher increase in public sector wages was possible as unions demand a rise in inflation over 4 percent, jeopardizing fiscal consolidation plans.

However, Fitch revised up South Africa’s economic growth, saying it would rebound to 4.3% in 2021, supported by the base effect and rising commodity prices.

“However, tight public finances and, in the short term, power shortages will hamper growth,” he said.

At the same time, S&P Global said that structural constraints, the slow pace of economic reforms and the slow roll-out of immunization remain among the main obstacles that will hold back growth over the medium term.

In response, the National Treasury acknowledged the pressures facing the country’s credit ratings and said the government remains committed to addressing them by accelerating growth-enhancing strategies.

“As outlined in Budget 2021, the government’s fiscal strategy puts South Africa on track to achieve a primary surplus large enough to stabilize debt,” he said.

“Over time, debt stabilization will lower borrowing costs and the cost of capital, attracting investments that can support the economy.”

Professor Raymond Parsons of the North West Business School said “the rating agencies’ decision to leave South Africa’s credit rating unchanged” would give the country more time to put its economic home in order. .

“The immediate priorities for South Africa remain to ensure a successful vaccine deployment, stabilize its public finances, put its public enterprises on a solid financial footing and ensure energy security,” said Parsons.

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