General: Treasury notes Fitch’s Eskom debt concerns

The ‘most viable’ option for tackling Eskom’s ‘debt challenge’ and ensuring its ‘sustainability’ will be ‘communicated in due course’. This is according to a National Treasury media statement on Friday’s Fitch ratings agency decision to revise its long-term foreign currency issuer default rating for SA from stable to negative. The revised outlook ‘reflects a marked widening in the budget deficit as a result of lower GDP growth and increased spending, including state-owned enterprise support,’ Fitch noted in press release announcing the move. In the agency’s view, this will make it more difficult to stabilise government debt in relation to GDP over the medium term, notes Pam Saxby for Legalbrief Policy Watch. 

Fitch’s decision appears to have been influenced to some extent by perceptions of ‘continued in-fighting within the ANC’, the likelihood that this will ‘draw attention away from policy-making’ and the challenges implicit in managing a host of ‘competing objectives’. In this regard, the agency referred to ‘reducing inequality, boosting GDP growth and containing populist pressures, while maintaining macroeconomic stability’. In response, Treasury conceded that ‘government will have to make tough decisions in order to reverse the country’s debt trajectory and improve economic growth prospects’ – but did not elaborate.

Interestingly, Fitch is confident that government ‘will handle land reform, including measures to allow for expropriation without compensation, in a way that will not damage growth or public finances’. Nevertheless, the agency has warned that, as the process unfolds, the ‘discussion’ entailed ‘could raise international investor concerns about property rights in the long term’. Although Fitch’s statement referred to the social issue of ‘exceptionally high inequality’ in the context of ‘competing objectives’, according to the recently published presidential advisory panel on land reform and agriculture report, if ‘social issues’ directly impacting on the quality of life of most South Africans are not addressed, the land reform programme will fail.

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