In a report released on Tuesday, Moody's said the elevated government debt and liability risk from state-owned enterprises (SOEs) remained a risk to the country’s growth prospects. It said the reduction of contingency liability reforms would exert upward pressure on the country’s overall rating, resulting in a downgrade. The news saw credit spread in the market, moving up 18 basis points on Tuesday from a non-attractive 236 basis points to 217. The appraisal came just hours after Eskom, the country’s biggest liability, confirmed another dim forecast for the current financial year, saying it was poised to record losses of R45 billion.
While Mboweni’s replacement of former minister Nhlanhla Nene a few weeks before the mini-Budget was received as positive, Moody's expects the country’s policy direction to remain the same, given the lack of changes in the past few years The ratings agency said the government needed to improve corporate governance and liquidity problems in SOEs, Eskom in particular, with a standalone credit quality or Baseline Credit Assessment (BCA) of caa2 and guaranteed debt of about 7percent to contain liabilities risk. It said the current BCA reflected the extremely weak liquidity for Eskom and a debt burden that was set to rise unless it was offset by tariff increases.
Moody’s said a potential upgrade would be determined by the country’s economic direction in the MTBPS. The agency projected the real economy to grow at 1.3 percent next year on the back of continued weak activity in most of the major industrial sectors.
The agency last month cut South Africa’s growth forecast from 1.5 percent expected at the start of the year to 0.7 percent on the news of South Africa entering a technical recession.
It said the rebound in the agricultural sector could, however, provide an upside potential for growth.
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