Fitch downgrades outlook on credit rating, government vows to stabilise SOEs

Published Jul 26, 2019

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Port Elizabeth - The South African government said on Friday it noted the Fitch rating agency's decision to affirm the country’s long-term foreign and local currency debt ratings at ‘BB+’ and to also revise the outlook to negative from stable.

Fitch said a widening budget deficit on the back of lower GDP growth and increased spending, including the government's support for its state-owned enterprises, particularly Eskom, as well as a downward revision of GDP growth in 2019, raised questions about the country's economic growth potential.

South Africa’s foreign and local currency credit ratings by Fitch remain below investment grade.

"Government is aware of the strain and risk that SOEs, particularly Eskom, present to the fiscal framework," the national Treasury said in a statement.

"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."

It said that the rating agency had also acknowledged governments attempts to boost growth through investment drives initiated by President Cyril Ramaphosa, measures to accelerate infrastructure investment, as well as to reduce transport and telecommunications costs and to fix visa regulations to improve tourism. 

The credibility of the South African Reserve Bank and its inflation targeting regime gave the country a significant credit strength as did its debt structure aimed to reduce refinancing and exchange rate risks, the statement said. 

"As communicated by the minister of Finance in the Special Appropriation Bill, a team of officials led by directors-general of national Treasury and Public Enterprises have considered a number of options as a solution to Eskom’s debt challenge to ensure its sustainability".

African News Agency (ANA)

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