SA could plunge further into junk status - Fitch

JOHANNESBURGH - South Africa could plunge further into junk status after Fitch Ratings changed SA’s outlook to negative from stable, citing a widening in the budget deficit.

The credit ratings agency changed SA’s outlook on its long-term foreign-currency issuer default rating, while affirming the rating itself at BB+, one notch below sub-investment grade.

“The outlook revision reflects a marked widening in the budget deficit as a result of lower GDP growth and increased spending, including state-owned enterprises (SOEs) support, increasing our projections for government debt to GDP and heightening the difficulty of stabilising debt to GDP over the medium term,” Fitch said in a statement.

The agency expects growth of just 0.5 percent this year, lower than the Reserve Bank’s projection of 0.6 percent, and well below the National Treasury’s 1.5 percent, due to continued weak gross fixed investment and subdued private consumption.

The change to the outlook follows an announcement from the finance minister that the government will give an additional R59bn in support for embattled power utility Eskom.

“To fix the underlying ongoing losses, support from the government is intended to be combined with consolidation and restructuring measures, including a separation of electricity generation, transmission and distribution into different business units,” Fitch said.

“However, trade unions, fearing privatisation and job losses, are strongly opposed to these measures and Fitch believes significant progress will be challenging.”