Carol Paton Writer at Large

Until the government provides a clear and detailed plan of how Eskom will be restructured, the troubled power utility will continue to overshadow the country’s public finances, ratings agency Moody’s said in a report on Thursday.  

Moody’s also expressed doubt that the government will be able to keep spending pressures under control should economic growth remain weak.

The report, which comes a day after the tabling of the 2019 budget, is a precursor to Moody’s March 29 rating action, at which SA risks being placed on negative outlook for a possible downgrade.

Should Moody’s downgrade SA, the consequences will be dire for investment and growth as it is the last of three credit ratings agencies to rate SA government debt at investment grade.

The details of the plan to rescue Eskom and, in particular, how the split into three companies will work and how the assets and liabilities will be apportioned between them, was noticeably absent from Wednesday’s budget.

The budget pledged R23bn of support for Eskom for each of the next three years. Treasury officials said this will likely be extended to 10 years, amounting to a R150bn of support measured in 2019 prices.

“Unless and until a clear adjustment path is tabled, Eskom will remain the source of contingent liability risks, weighing on SA’s fiscal strength,” Moody’s warned. 

Thursday’s report expresses some scepticism that, given recent trends and “fiscal slippage”, the government will be able to achieve the promise of fiscal consolidation.

Said Moody’s, “Achieving and maintaining spending restraint will be challenging for the SA government especially if growth remains weak.”

Correction: February 21 2019

The previous headline on this story read that Moody’s "changed its mind" on SA’s outlook due to Eskom’s finances. In fact, Moody’s made no changes to its outlook on the country’s  sovereign debt.