Ratings agency Fitch has maintained its stable outlook for South Africa, and affirmed the country’s foreign and local currency debt ratings at a sub-investment grade BB- rating.

Fitch said the key factors for the rating were high and rising government debt, low growth and high inequality. The ratings were however supported by "a favourable debt structure... as well a credible monetary policy framework."

"The affirmation takes into consideration that government debt last year was lower than previously anticipated, but that debt stabilisation will remain challenging."

Fitch expects economic growth to decelerate 2.3% in 2022, and fall even further to 1.7% in 2024. It says that while growth is currently supported by the return to normalcy after the Covid-19 pandemic and high commodity prices, the international environment is becoming "more challenging".

The ratings agency also pointed out South Africa’s energy shortages were a big growth risk. The country experienced an unprecedented stretch of Stage 6 load shedding over the past weeks and while there has been some improvement, the forecast is for lower stages of load shedding to continue for some time.

"Electricity shortages weigh heavily on growth and this could worsen further before new supply, mostly in the form of independent power producer (IPP) projects, comes on line," Fitch said.

"While the government is making progress with its reform agenda, the scale of measures (beyond electricity) is too limited to make a significant difference to potential growth in the medium term."

The ratings agency said that the poor finances of many state-owned entities still "pose considerable risks to public finances". Eskom is expected to require an additional R150-billion, but Fitch did not factor this into its debt forecast "due to the uncertain timing and form of support".

National Treasury said in a statement that government will continue to demonstrate its commitment to fiscal sustainability and enable long-term growth. This would be done by narrowing the budget deficit, which Fitch expects to stabilise at 5.5% of GDP to the 2024/25 financial year, and SA’s sizable debt, which the rating agency forecast to rise to 75.9% of GDP in 2024/25.

"South Africa’s steadfast commitment to restoring the sustainability of public finances is supported by better-than-expected revenue collection in the current fiscal year," Treasury said.