SA says Fitch reprieve will focus efforts on bringing down debt

South Africa’s treasury welcomed Fitch’s decision to leave the country’s credit rating at one notch below junk with a negative outlook on Wednesday, saying it would push on with plans to cut spending and contain debt linked to bailouts of state companies.

Fitch said in a statement it affirmed both the long-term foreign and local currency debt ratings at “BB+”.

It said emergency funding to state companies was a significant rating risk and failure to formulate in the “near-term a clear and credible path towards stabilising the government debt/GDP ratio” could result in a downgrade. Government debt has doubled from less than 30% of GDP before the 2008 global financial crisis to nearly 60%, with the Treasury saying in October in the worst case the may reach 70% in the next two to three years.

“Government remains committed to the stabilisation and improvement of its fiscal position,”

“(We’re) also cognisant of the pressures and risks that state-owned companies, particularly Eskom, present to the fiscal framework,” the National Treasury said in a statement. “Government is providing medium-term support to Eskom to secure the energy supply and to honour the state’s contractual obligations.”

Power utility Eskom carries R450 billion of debt and has struggled to keep the lights on, unleashing nationwide blackouts in the past weeks that may have dragged the country into recession.

The government has promised bailouts of roughly R230 billion of bailouts to Eskom spread over the next decade with R105 billion in the 2019/20 and 2020/21 financial years.