by AKANI CHAUKE
JOHANNESBURG – ANALYSTS are wary of one of the most critical weeks in the South African economic calendar culminating in downgrades by international rating agencies on the back of serious problems afflicting the national power utility.
Problems have been mounting at the beleaguered electricity parastatal, Eskom, resulting in recurrent blackouts across Africa’s most advanced economy.
The problems at Eskom are expected to determine Moody’s all-important ratings review on Friday.
ABSA’s economists projected the agency was more likely than not to assign a Negative outlook to South Africa’s Baa3 rating or to formally put the rating under review for a downgrade.
In the wake of the 2019 Budget, ABSA had assessed the probabilities of each to be 40 percent and 15 percent, respectively.
“However, subsequent to this, Eskom’s burst of intense electricity rationing has highlighted the scale of its operational challenges (with attendant negative consequences for Eskom’s finances and for the broader macroeconomy (including especially South Africa’s already tepid growth prospects),” ABSA stated.
Consequently, ABSA believes the probabilities of some negative announcement from Moody’s on its rating have risen slightly.
“…although we do not think that Moody’s will actually implement a downgrade at this stage, preferring instead to wait a little to assess whether the government can stabilise Eskom and to assess the lay of the land after the elections on 8 May.”
Nema Ramkhelawan-Bhana, the Head of Rand Merchant Bank Global Research, said the decision by Moody’s was “far more touch-and-go” as market participants continued to debate whether South Africa’s metrics had deteriorated enough to warrant a downgrade in its sovereign outlook.
“On the face of it, it would seem that our fate is sealed, especially if we consider February’s budget outcomes and Eskom’s apparent unravelling,” she stated.
Ramkhelawan-Bhana nonetheless said there were indications that Moody’s was more forgiving of our shortcomings and might grant South Africa a reprieve, at least in the short term, to allow structural reforms to take hold.
“What’s clear is that the market is coloured with ambiguity, which should translate into thinner flows, particularly into SA’s local bond market,” she said.
Other highlights of the week include the South African Reserve Bank Monetary Policy Committee (MPC) unveiling its interest rate decision and Statistics South Africa’s release the February Producer Price Index (PPI) data for February.
“Brace yourself, it’s going to be a bumpy ride as South Africa encounters one of the most crucial weeks in its economic calendar this year,” ABSA stated.
SARB’s gross domestic product growth forecast is currently 1,7 percent for 2019 and Consumer Price Index at 4,8 percent for the year.
– CAJ News