SA Fiscal Shift: Fitch Welcomes Debt Stabilization Plan
- Fitch Ratings has expressed a positive outlook on South Africa's recent adjustments to its inflation target and fiscal policy, as outlined in the Medium Term Budget Policy Statement...
- The South African government's decision to adjust its inflation target is expected to align the country's inflation rate more closely with its trading partners and reduce downward pressure...
- These projections, while slightly higher than those presented in the May budget, are consistent with Fitch's baseline projections from September, when the agency affirmed south Africa's 'BB-' rating...
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Fitch Ratings Positive on South Africa’s Inflation Target and Fiscal Outlook
Table of Contents
Updated November 16, 2023, 08:42 AM PST
Key Developments
Fitch Ratings has expressed a positive outlook on South Africa’s recent adjustments to its inflation target and fiscal policy, as outlined in the Medium Term Budget Policy Statement (MTBPS) delivered on Wednesday. The agency believes these changes will bolster macroeconomic stability and improve the country’s fiscal position.
The South African government’s decision to adjust its inflation target is expected to align the country’s inflation rate more closely with its trading partners and reduce downward pressure on the South African Rand (ZAR). The MTBPS signaled improvements in the fiscal framework despite a challenging economic growth environment.
Fiscal Improvements Detailed in MTBPS
The MTBPS highlighted several key fiscal improvements:
- A narrower budget deficit.
- A growing primary surplus.
- A projected peak in gross loan debt at 77.9% of GDP in the fiscal year 2025/26.
These projections, while slightly higher than those presented in the May budget, are consistent with Fitch’s baseline projections from September, when the agency affirmed south Africa’s ‘BB-‘ rating with a stable outlook. Fitch’s September projections where 77.4% in FY25,77.8% in FY26, and 78.4% in FY27.
| Fiscal year | May Budget (%) | MTBPS (%) | Fitch September Projection (%) |
|---|---|---|---|
| FY25 | 77.3 | 77.9 | 77.4 |
| FY26 | 77.6 | 77.7 | 77.8 |
| FY27 | 78.1 | 77.4 | 78.4 |
Stronger-than-expected tax revenue, notably from Value Added Tax (VAT) and corporate income tax, allowed the government to strengthen its fiscal position without resorting to increased borrowing or meaningful expenditure cuts. This demonstrates improved policy credibility.
Fiscal Discipline and Future outlook
Treasury’s commitment to reducing bond issuance and avoiding pre-election spending reinforces the perception of greater fiscal discipline. This approach is viewed positively by Fitch, suggesting a commitment to sustainable fiscal management.