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Eskom, risk of Moody's downgrade are biggest risks facing SA, says Treasury official

Apr 11 2019 15:13
Lameez Omarjee, Fin24

The biggest risks threatening SA's economic growth are Eskom and a potential downgrade to junk status by ratings agency Moody's, a Treasury official has said. 

Speaking at a panel discussion of the S&P's Global Annual South Africa Conference in Cape Town on Thursday, Treasury's acting deputy director general of economic policy, Duncan Pieterse, shared views on some of the biggest risks to SA's economy.

Load shedding

Eskom poses a risk to economic activity through the prevalence of load shedding, he said.

Further, electricity tariffs and how they impact SA's competitiveness as well as inflation have a bearing on the economy, he explained. Eskom, which has debt of over R420bn, is also a potential fiscal risk.

Speaking more broadly on state-owned enterprises (SOEs), Pieterse said they may not all pose as large a fiscal risk as Eskom, but government has acknowledged there must be a different approach to these entities.

"We need to start thinking differently about other SOEs," he said, before explaining that resources are often diverted from other social expenditure.

Discussing the credit rating, Pieterse said a downgrade by Moody's would have implications for debt service costs, the currency and inflation, among other things.

Moody's is the only ratings agency which has SA rated at investment grade.

Investor concerns

Having been on an investor roadshow in the UK and the US recently, Pieterse said that Eskom was of equal concern to investors.

"There are concerns of Eskom and the implementation of reforms," he said. Foreign investors are also concerned about the outcome of the elections, and the "post-election environment", he said.

He noted that SA has had low investment since 2010 and that the investment drive last year was useful in helping to recover investment levels.

Quick reforms needed

It would be crucial to implement reforms quickly, Pieterse said. "We have seen some progress but we must see faster implementation of some of the reforms announced," he told delegates.

He told the conference that there had been some progress on execution of reforms based on relevant ministers and Cabinet. "The speed of reform agenda depends on the quality of Cabinet," he said.

moody's  |  s&p  |  eskom  |  debt  |  credit rating  |  sa economy  |  economic outlook  |  investment
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