Power cuts set SA up for investment downgrade
Economists say South Africa is leaning towards a 70 % chance for a downgrade by international credit rating agency Fitch this Friday.
Both Fitch and Standard & Poor (S&P) will review the country's rating by end of this week. The latest stage three power cuts, that were introduced last week, will weigh heavily on the country's fourth quarter GDP numbers.
Along with the country's poor economic performance this year and an increasing government debt, economists say an increasing public sector wage bill are key areas of concern which the rating agencies will be looking at
. Economists say the country's credit rating might be downgraded to a triple B-minus from a triple B which, according to S&P, is one step away from presenting the country with a “junk” status.
Investment Solutions economist, Chris Hart, says electricity feeds into the weak economy. He says, “The load-shedding we know will make an enormous impact on the 4th quarter GDP.”
Hart explains that South Africa’s economy had not had strong GDP numbers throughout the year with a B negative growth in the first quarter, a slight positive in the second and more than one percent in the third quarter.
South Africa was last rated below investment grade by S&P and Fitch in 2000.
Economist Mike Schussler says this downgrade will be one stage above non-investment grade and expects further downgrades in the next two years
The country's leading power utility Eskom is at risk of being further downgraded by international rating agencies. S&Ps retained the power utilities current rating, but with a negative outlook
.
However, Government says it is confident that the power utility will overcome its current challenges