Finance Minister Enoch Godongwana will present the budget on February 22.
- The prolonged power outages have prompted warnings that SA could face downgrades.
- The load shedding has been longer than expected.
- Because of this, economic growth and political stability are threatened.
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With a week to go before Finance Minister Enoch Godongwana presents his budget to Parliament, two global credit rating agencies warned of a deteriorating risk profile for SA due to the impact of prolonged power outages on the economy.
On Wednesday, Fitch Ratings said that while it had anticipated power outages to continue through 2023, “further deterioration in electricity supply goes beyond our base-case scenario and presents downside risks to our forecast that economic growth will average 1.1% in 2023”.
However, Fitch has yet to revise its growth projections due to higher-than-expected growth in the third quarter of 2022, which it believes “should limit the size of downward revisions to our 2023 growth forecast.”
Fitch also did not revise SA’s credit rating from BB- with a stable outlook (three notches below investment grade) saying there is still room to absorb a temporary hit to economic metrics from load reduction. If load shedding is not addressed in the medium term or further deterioration in the growth trajectory, it would be a credit negative for SA.
The agency was cautiously optimistic about the measures announced by President Cyril Ramaphosa in the state of the nation address, stating:
The state of national disaster and the appointment of an electricity minister with responsibility for managing the crisis could strengthen the government’s ability to coordinate a response and speed up practical measures to address power shortages, as it limits regulatory requirements. However, Eskom’s generally poor execution record and governance problems, highlighted by the resignation of Eskom’s chief executive in December, suggest further delays are possible.
Fitch’s statement follows one published by Moody’s Investor Service last Friday, headlined “Longest streak of SA power outages is bad for credit.”
“We expect the effect of the blackouts on business, consumer confidence and investment to weaken the country’s already subdued economic growth prospects and threaten social and political stability… Given social inequalities and high unemployment rates of South Africa, social and political instability is likely to intensify, especially given the electricity regulator’s decision in January to grant an increase in electricity prices of more than 18%, effective April 1,” Moody’s said. .
Both agencies noted the South African Reserve Bank (SARB)’s downward revision to its 2023 growth forecast from 1.1% to 0.3% and expected central bank power cuts will remove two percentage points from growth. for the next three years.
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Fitch expects the fiscal deficit to stand at 5.1% at the end of the 2022/23 financial year, an increase compared to the National Treasury forecast of 4.9%. Moody’s said it did not expect a large widening of the deficit, as it expected the government to cut spending proportionately. Moody’s rates SA Ba2 with a stable outlook, two notches below investment grade.
