Eskom Remains a Key Risk to South Africa's Finances, Fitch Says

(Bloomberg) -- South Africa’s power utility remains a major risk to the nation’s fiscal targets even as this week’s budget reverses some of the deterioration in the country’s finances, Fitch Ratings Ltd. said.

Eskom Holdings SOC Ltd.’s “medium-term finances are under pressure from weak demand growth and the electricity regulator’s refusal to grant more substantial tariff increases,” Fitch said in an emailed statement on Friday. Measures including private-sector participation to improve the utility’s finances “will face significant political hurdles,” the company said.

Finance Minister Malusi Gigaba announced tax increases and spending cuts to narrow the fiscal deficit and curb debt in his budget on Feb. 21. The government will look to sell some of its 195,000 properties as it seeks new funding and looks to reduce government guarantees handed to state-owned enterprises, he said. Eskom is the biggest recipient of guarantees at 220.8 billion rand, the Treasury said.

The budget signals a commitment to consolidation that appeared to be waning in the October mid-term spending plans that had projected debt will exceed 60 percent of gross domestic product by 2022, Fitch said. It’s now expected to peak at 56.2 percent of GDP in the same year. Economic growth may get a boost from recovering business and investor confidence following the resignation of Jacob Zuma as president.

Fitch is the only major ratings company with a stable outlook on South Africa’s credit ratings after it lowered the foreign- and local-currency credit assessment to non-investment grade last year, citing policy uncertainty and concerns about the management and finances at state-owned companies. S&P Global Ratings did the same and Moody’s Investors Service has the country on review for a downgrade to junk. It may make an announcement on March 23.

To contact the reporter on this story: Rene Vollgraaff in Johannesburg at rvollgraaff@bloomberg.net.

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net, Ana Monteiro, Jacqueline Mackenzie

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