South Africa: Eskom Central to Fitch Downgrade

  • Fitch Ratings has revised the Outlook on South Africa’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable and affirmed the IDR at ‘BB+’.

The ratings agency stated that the outlook revision reflects a marked widening in the budget deficit as a result of lower GDP growth and increased spending, including state-owned enterprise (SOE) support, increases their projections for government debt/GDP and heightening the difficulty of stabilising debt/GDP over the medium term.

“Renewed downward revisions to GDP growth in 2019 also raise new questions about South Africa’s GDP growth potential,” noted Fitch Ratings.The ratings agency further noted that the social context of exceptionally high inequality will constrain the government’s policy response to these challenges.

In a statement issued on Friday, the National Treasury said government is aware of the strain and risk that SOCs, particularly Eskom, present to the fiscal framework. “Government is urgently working on stabilising Eskom while developing a broad strategy for its future. Additionally, government will have to make tough decisions in order to reverse the country’s debt trajectory and improve economic growth prospects,” National Treasury said in the statement.

“Nonetheless, the rating agency has acknowledged that government is making efforts to boost growth, through amongst others; the investment drive initiated by the President, measures to accelerate infrastructure investment, measures to reduce costs in transport and telecommunications as well as improvements in visa regulations in order to strengthen tourism.”

Furthermore, the agency acknowledges that the credibility of the South African Reserve Bank and its inflation targeting regime remains an important credit strength, and government’s debt structure helps to reduce refinancing and exchange rate risks.

Author: Babalwa Bungane

This article was originally published on ESI Africa and is republished with permission with minor editorial changes.

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