Fitch Ratings agency has warned that Eskom’s rotational power cuts will hamper South Africa’s economic growth while socio-political issues will exacerbate risks.
Eskom is expected to continue implementing various stages of loadshedding for the foreseeable future, until the situation has been normalised after the full return to work of all striking employees.
In a ratings report late yesterday (THUR), Fitch also said that South Africa’s energy crisis could worsen further before it stabilises after Eskom plunged the country into Stage 6 loadshedding recently.
“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,” it 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.
“Eskom is expected to require additional financial support of around R150 billion, which is not factored into our debt forecast due to the uncertain timing and form of support.”
Fitch affirmed South Africa's long-term foreign-currency (LTFC) issuer default rating (IDR) at 'BB-', three levels into junk status, with a stable outlook.
The affirmation took into consideration that the government’s debt trajectory was lower than previously anticipated as well as recent improvements in several key credit metrics, including the current account balance.
However, the agency anticipated debt stabilisation to remain a challenge.
It expects the economy to decelerate to 2.3 percent in 2022 and further to 1.7 percent in 2024 after growth of 4.9 percent in 2021.
Fitch said growth was still supported by post-pandemic normalisation and high prices for South Africa's key commodities.
However, it said these factors will fade gradually as the international environment becomes more challenging.
Responding to this ratings action, the National Treasury said it would continue on the set path of fiscal sustainability and narrowing the budget deficit.
“Government will continue to demonstrate its commitment to fiscal sustainability and enable long-term growth by narrowing the budget deficit and sizable debt,” it said.
“According to the agency, South Africa’s ratings are supported by a favourable debt structure with long maturities and denominated mostly in local currency as well as a credible monetary policy framework,” the Treasury noted.
siphelele.dludla@inl.co.za
BUSINESS REPORT ONLINE