Riccardo Ridolfi

South Africa’s long-term foreign and local currency debt ratings was downgraded by S&P Global Ratings by one notch each to ‘BB’ and ‘BB+’, respectively with a stable outlook.

Fitch Ratings on Thursday affirmed South Africa’s long-term foreign and local currency debt ratings at ‘BB+’ and maintained the stable outlook.

In a response to the Fitch ratings, National Treasury said in a statement: “Government has noted Fitch’s decision not to further downgrade South Africa deeper into ‘junk status’. While Fitch’s ratings imply that South Africa is still in line with other emerging markets in the same ratings category, the implications are huge for the country.”

Moody’s however, has placed the country’s ratings of ‘Baa3’ on a 90-day review for a downgrade. The ratings carry a negative outlook.

According to Moody’s, the decision to place South Africa’s rating on review for a downgrade was prompted by a series of recent developments which suggest that South Africa’s economic and fiscal challenges are more pronounced than Moody’s had previously assumed.

Treasury said that “according to the rating agency, growth prospects are weaker and material budgetary revenue shortfalls have emerged alongside increased spending pressures.”

Eskom governance

Treasury added: “The 2018 Budget will outline decisive and specific policy measures to strengthen the fiscal framework, as an important contributor to improved confidence of all stakeholders, and a return to inclusive growth.

“While progress has been achieved on most of the 14 Confidence Boosting Measures, decisively strengthening governance at Eskom – with the appointment of a highly trusted and capable board as a first step – is an urgent priority.” Read more…

Business Day reported that “S&P’s downgrade on Friday follows repeated warnings by the ratings agency that the government standing R350bn surety for state-owned power utility Eskom’s spiralling debt was unsustainable.”

In its rating action on Friday, S&P again cited concern over the struggling utility.

“Over the next six months, we anticipate that appropriations may be required to shore up Eskom’s very weak financial position. Eskom already benefits from government guarantees of nearly 8% of GDP.” Read more…

How has the recent downgrade going to impact on Eskom’s ability to raise finance?

 

Featured image: Stock