Credit rating agency Fitch said last week that failure to address load-shedding over the medium term could result in downward pressure on South Africa’s credit rating.
In November last year, Fitch reaffirmed South Africa’s rating at ‘BB-’, with the assumption that power outages would not significantly improve in 2023.
However, the further deterioration in electricity supply has been more severe than they anticipated and represents a downside risk from the December forecast of 1.1% average growth in 2023.
“Should infrastructure problems cause a further decline in potential growth, that could eventually weigh on the sovereign rating,” they said.
Fitch described South Africa’s low-growth potential as a “key credit weakness”.
Fitch placed South African bonds below investment grade, known as junk status, in 2017.
Lower credit ratings make the prospect of buying bonds in a country less attractive to investors unless interest rates are raised to make the investment more attractive.
“I think there is a very high probability that some of the rating outlooks will be changed to the negative,” Saveshen Pillay said in an interview with SABC News.
Pillay is the managing director and founder of Credit Rating Analytics, an organization that provides consulting services and assistance to governments for their credit ratings.
He said South Africa would take a very long time to get its credit rating back to investment grade.
On the bright side, Pillay said South Africa has institutional strength that other countries don’t have.
“If the government really wanted to make a concerted effort to improve the credit ratings – I think it is possible.”
However, going forward, he said that the negatives for the credit rating outweigh the positives.