Reserve Bank warns liabilities at SOEs still pose a downgrade threat
The Bank’s Financial Stability Review says that SA still has a vulnerable domestic fiscal position
The Reserve Bank has warned that the rising contingent liabilities of state-owned entities (SOEs) remain a concern and could lead to further credit ratings downgrades.
Since last year the Bank has revised SA’s growth outlook upwards from 1.4% to 1.7%, while confidence has improved. At the end of March, Moody’s affirmed the country’s sovereign credit rating at investment grade with a stable outlook.
However, although fiscal consolidation and debt stabilisation measures announced in the February budget were well received by credit ratings agencies, SA still has a vulnerable domestic fiscal position.
This is according to the first edition of the Reserve Bank’s Financial Stability Review published on Wednesday.
"Consensus is growing globally that regulatory frameworks should focus more on mitigating the risks to the financial system as a whole, as significant risks can build up and threaten the stability of the financial system," said deputy governor Francois Groepe, speaking at the report’s launch.
The Reserve Bank’s Financial Stability Review 2018
Of particular concern are the rising contingent liabilities of the government to SOEs such as Eskom and the Road Accident Fund (RAF).
Eskom got government guarantees of R220.8bn in 2017-18, while the RAF got guarantees for R189.2bn.
Although the government has made progress with institutional changes at some SOEs, including new boards at Eskom and South African Airways, the Bank cautioned that parastatals’ ability to roll over debt could leave the government liable and possibly unable to finance such debt, placing further strain on public finances.
"This could mean that government would have to borrow more, which would result in a deteriorating balance sheet of government and possible further credit rating downgrades."