JOHANNESBURG – South Africa’s business cycle is at its lowest since 1945, says the South African Reserve Bank. Fitch Ratings have downgraded the country’s debt rating to BB+, a negative outlook and a little below investment grade. News agencies report Eskom’s bailout is one of the major reasons for it.
“Downward revisions to GDP growth in 2019 also raise new questions about South Africa’s GDP growth potential” says Fitch.
The major contributor to this crisis is Eskom. The ministry invested R59 billion ($4.1 billion) to bail out the company. This amount is additional to an already-promised amount of R219 billion in the next 10 years.
Eskom supplies about 90 percent of the country’s power. The company is facing a debt load of R400 billion. This, the company’s R25 billion revenue from the sale of electricity won’t be able to cover.
The extra investment to the company will widen the deficit in the budget. It will change the GDP from 4.5 percent in February to 6.3 percent in this fiscal year.
The Finance Ministry says that it is aware of the risk of investing in Eskom. However, they are planning a broad strategy for Eskom’s future. This will be profitable for the nation in the long run.
“Government is urgently working on stabilising Eskom, while developing a broad strategy for its future. Additionally, government will have to make tough decisions in order to reverse the country’s debt trajectory and improve economic growth prospects.” Says the Treasury.
Another major rating company, Moody’s Investors Service, is the only one that hasn’t downgraded the country yet. After Fitch’s rating, Moody’s is under pressure to either follow the lead by other rating companies or give South Africa hope.
Getting the economic growth to fulfil the expectations is getting tough for South Africa. The National Treasury is expected to lower it’s expected growth of economy from 1.5 percent to 1.1 percent in the mid-term budget.