S&P said that, following the election, the government was expected to focus more on new policy initiatives that will aim to support firmer economic growth and reform state-owned companies. Photo: EPA

JOHANNESBURG – International rating agency S&P Global on Friday warned that South Africa's fiscal position remained weak due to considerable deficits, ballooning debt and contingent liabilities largely tied to cash-burning power producer Eskom. 

This is as the agency kept the country's foreign and local currency credit ratings in junk status with a stable outlook.

In a ratings review note, S&P said that, following the election, the government was expected to focus more on new policy initiatives that will aim to support firmer economic growth and reform state-owned companies.

“The stable outlook reflects our view that with the elections now over, the South African government will pursue some reforms and attempt to improve economic growth and try and contain fiscal deficits,” S&P said.

S&P also revised down its growth forecast for this year to 1percent, due to poor performance in the first quarter and power supply constraints, and in line with the Reserve Bank growth outlook for the year. The National Treasury said the government fully recognised S&P’s assessment of challenges and opportunities the country faces in the immediate to long term.

“The main focus for the government remains to regain South Africa’s investment-grade status to make the country an attractive investment destination,” National Treasury said. “This will be achieved by enhancing policy certainty and credibility, implementing growth-enhancing economic reforms, lowering the debt burden as well as restoring good governance and financial stability at public institutions and state-owned companies, specifically Eskom.”

Moody’s, which is the only one of the major rating agencies that still have the country's sovereign debt above junk this month, said the country was fast slipping into junk status as continuing structural weaknesses and rising debt overran South Africa's ability to service its obligations.

Eskom, whose financial and operational challenges have dominated much of Ramaphosa’s 16 months rein, was given R5billion in emergency funds just weeks before the elections to enable it to meet obligations.

Fitch this month also warned that implementing the turnaround plan for Eskom will depend on overcoming trade union objections.

North West University Business School economist Raymond Parsons said S&P’s unchanged rating review was a “wait-and-see” stance.

“S&P are therefore expecting to see policy certainty strengthened, pro-growth reforms implemented, the debt burden reduced and state-owned companies like Eskom overhauled and restructured to ensure better governance and financial stability,” Parsons said. The mounting pressure from rating agencies comes as Ramaphosa is expected to announce his new Cabinet this week.

“A new Cabinet will need to be immediately committed to a priority-led action agenda which will co-ordinate policy and ensure delivery.”

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