Fitch reduces South Africa’s debt outlook following Eskom bailout announcement

Fitch Ratings has cut its outlook for South Africa’s debt assessment to negative after the government announced it would hand an additional R56 billion bailout sum to debt-laden public utility Eskom.

The credit ratings agency reduced the outlook from stable to negative and maintained the junk BB+ rating on the nation’s foreign and local currency debt, it said in an emailed statement on Friday.

Fitch said that its changing outlook is due to a “marked widening in the budget deficit as a result of lower GDP growth and increased spending, including state-owned enterprise support.”

The latest financial support package for Eskom will widen the budget deficit for this fiscal year to 6.3% of GDP, compared with the 4.5% of GDP the government projected in February, Fitch said.

Government debt is projected to increase to 6.8% of GDP by 2021-22 and could continue to rise after that, according to the company.

South Africa is also in danger of losing its only remaining investor grade debt assessment from a major credit ratings company, after Moody’s Investors Service said on Thursday that additional support without an accompanying plan to make Eskom more sustainable is ‘credit negative’.

Eskom’s debt figure is close to hitting R500 billion and the company isn’t selling enough electricity to cover its operating and borrowing costs. President Cyril Ramaphosa announced in February that the company will be split into three businesses, but plans for the restructuring are yet to be outlined.