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Government faces tough decisions following latest credit rating: Treasury

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National Treasury says government faces some tough decisions following South Africa’s latest credit rating setback.

It has given the assurance that it’s committed to ensuring that Eskom and other State-owned Entities (SOEs) are stabilised to make them sustainable.

This follows ratings agency Fitch’s decision to revise the country’s economic outlook from stable to negative and to affirm its foreign and local currency debt ratings at double B-plus.

Law Professor, Tshepo Mongalo says Fitch remains optimistic about government’s ability to restructure SOEs.

“We already know what those measures are. Eskom has to reduce its debt by 9%, which means some difficult decisions will have to be taken including reducing headcounts. But as to whether that is something that could be sustainable, given the fact that the trade union being in opposition to that, is something that Fitch is concerned about. That’s the reason they changed their outlook to negative,” says Mongalo.

‘No surprise’

Economists say the decision of rating agency Fitch to revise its outlook on South Africa’s credit rating from stable to negative comes as no surprise.

Fitch has cited the country’s widening budget deficit due to increased spending on state-owned companies among others.

It has forecast government’s debt to peak at nearly 70% of GDP in 2021/22 while growth is expected to come in at just 0.5% in 2019.

Market Analyst, Liston Meintjes, has warned that the decision of Fitch could pressurise Moody’s to downgrade the country.

“When the Minister of Finance said that he was going to give money to Eskom, everybody said the downgrade is coming. The downgrade we worries about is Moody’s not Fitch…..it places the pressure on Moody’s to say are they going to capitulate and keep us on sub investment grade that’s will be really the serious one.”

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