Moody’s has downgraded Eskom, citing a lack of clarity regarding the utility’s plans to stabilise its finances.
The rating agency says it also took into account the lack of any tangible financial support for Eskom in the former Finance Minister Malusi Gigaba's budget speech and the liquidity and funding challenges the utility may continue to face.
Eskom's Khulu Phasiwe says the utility is disappointed but not discouraged.
“The most important things, among others, Moody’s is saying is they are sort of comfortable by the pace Eskom is doing now in relation to addressing the issues of cooperate governance which were a big pain for all of us, including the ratings agencies before.”
On Monday, South Africa breathed a little easier after a ratings agency upgraded its outlook for the country.
We went from "negative" to "stable" in Moody’s eyes with the agency keeping its investment-grade rating on the country, crediting the president.
In a swift response, the South African Treasury welcomed the decision, but acknowledged the warning by Moody’s that promises to improve political and policy uncertainty were seen as essential in holding on to the country’s rating.
Since Cyril Ramaphosa took over the reins, he's shaken up his Cabinet, doing away with dodgy ministers, grand corruption investigations into the likes of the Guptas and Jacob Zuma appear to have been given a jump start and Eskom’s new bosses are trying to halt the rot at the power utility.
Ramaphosa also suspended Zuma ally, Tom Moyane, as head of the South African Revenue Service.
Moody’s rates Pretoria’s debt at "Baa3", the lowest rung of investment grade.
The credit ratings agency said the recovery of institutions in South Africa would - if sustained - kick-start the economy as well as provide a stabilisation of fiscal strength.
“The confirmation of South Africa’s ratings reflects Moody’s view that the previous weakening of South Africa’s institutions will gradually reverse under a more transparent and predictable policy framework,” Moody’s said in a statement.
Ahead of the decision, the rand currency and local bonds traded firmly on Friday, outpacing emerging market peers on anticipation of the reprieve by Moody’s.
The Treasury said in a statement that the reprieve from Moody’s showed that steady progress in meeting the objectives set out in Ramaphosa’s State of the Nation address in February was key for the country’s economic and fiscal prospects to be sustained.
“To improve South Africa’s investment and economic prospects, the government continues to work diligently on practical steps to provide the necessary policy certainty,” the Treasury said.
South Africa’s economic growth has shown signs of recovery, expanding by a surprise 3.1 percent in the fourth quarter, the highest rate since the second quarter of 2016.