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Fitch downgrades South Africa's credit rating

Fitch downgrades South Africa's credit rating

South Africa

Ratings agency Fitch downgraded the outlook for South Africa’s sub-investment credit rating on Friday, citing fiscal pressures including increased support for struggling state firms such as the power utility Eskom.

South Africa’s public finances are under huge strain as economic growth has proved weaker than expected while a handful of state companies have needed large government cash injections.

The government this week proposed giving Eskom 59 billion rand ($4.1 billion) of additional financial support over the next two years, on top of an already-promised bailout of 230 billion rand spread over the next decade.

Downward revisions to GDP growth in 2019 also raise new questions about South Africa’s GDP growth potential.

Fitch now rates South Africa’s debt at ‘BB+’, a notch below investment grade, with a negative outlook.

The firm said it forecast the consolidated general government deficit would widen to 6.3% of gross domestic product (GDP) in the current fiscal year, from 4.2% last year.

In a statement that also highlighted political risks, Fitch said: “Continued infighting within the African National Congress is likely to draw attention away from policymaking.”

“Downward revisions to GDP growth in 2019 also raise new questions about South Africa’s GDP growth potential,” it added.

The Finance Ministry said it was aware of the risk that state firms such as Eskom presented and that it was developing a broad strategy for Eskom’s future.

Eskom is expected to publish financial results next week which will show the extent of the crisis at the utility.

REUTERS

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