Bloomberg News

South Africa’s Slowing Growth May Pressure Fitch Rating

May 29, 2012

South Africa’s credit rating may come under pressure as growth in Africa’s biggest economy slows and the government faces the prospect of bailing out the state-owned road agency, Fitch Ratings said.

Government guarantees on outstanding debt owed by South African National Road Agency SOC Ltd. may complicate efforts to narrow the budget deficit after a court blocked plans by the state-owned company to raise toll revenue to repay bonds and loans, Carmen Altenkirch, a sovereign credit rating analyst at Fitch, said in an interview in Arusha, Tanzania, yesterday.

Economic growth of below 3 percent “is quite weak for a country like South Africa,” Altenkirch said. “One could see a number of factors stacking upon each other which could see debt increasing and weigh on the rating.”

Finance Minister Pravin Gordhan pledged in his February budget to narrow the fiscal gap to about 3 percent of gross domestic product in the year through March 2015 from 4.5 percent this year, by curbing wage increases and boosting tax collection. That goal is being undermined by a worsening debt crisis in Europe, which may slow economic growth to an estimated 2.7 percent this year from 3.1 percent in 2011, according to government forecasts.

Rating Outlooks

In January, Fitch cut the outlook on South Africa’s BBB+ credit rating to negative from stable, citing slower growth and a wider budget deficit. That followed similar action by Moody’s Investors Service and Standard & Poor’s.

The economy expanded an annualized 2.7 percent in the first quarter, compared with 3.2 percent in the previous three months, the statistics office said today. The rand fell 0.1 percent to 8.3337 against the dollar as of 3:02 p.m. in Johannesburg. The yield on the R157 bond due in 2015 was unchanged at 6.39 percent.

Rising unemployment, especially among young people, puts more pressure on the government to raise spending, Altenkirch said. South Africa’s jobless rate rose to 25.2 percent in the first quarter, the highest among more than 60 nations tracked by Bloomberg, from 23.9 percent in the previous three months.

“There are more generalized risks created as a result because of the crisis in the euro zone,” Altenkirch said. “It makes it even more difficult for government to meet the objectives of job creation.”

‘Large Negative Implications’

The government is also facing rising debt levels. Sanral, as the state-owned road agency is known, risks defaulting on 37 billion rand ($4.4 billion) of debt if it’s prevented from charging tolls on roads in Gauteng province, Gordhan said on May 23. That may require the government to repay the debt on behalf of Sanral, undermining the nation’s credit rating, he said.

“If government were forced to redeem Sanral’s debt as part of a call on the guarantee and debt acceleration, then there will be large negative implications for the budget deficit and government issuance,” Carmen Nel and Mamello Matikinca, analysts at FirstRand Ltd. (FSR) in Johannesburg, said in an e-mailed note to clients today. “It would become more difficult to contain the spill-over to other parastatal debt.”

Altenkirch said the ruling African National Congress must clarify its position on the mining industry when the party holds its national policy conference next month. The ANC Youth League has pushed for mines to be nationalized in South Africa, the world’s largest producer of platinum and chrome.

“They need to reiterate very clearly that nationalization is not the policy of the ANC or the government and that it is no longer under discussion,” Altenkirch said.

To contact the reporter on this story: Andres R. Martinez in Johannesburg at

To contact the editor responsible for this story: Andrew J. Barden at

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