With a week to go before Finance Minister Enoch Godongwana tables his budget in Parliament, two global credit ratings agencies have warned of SA's deteriorating risk profile due to the impact of prolonged electricity cuts on the economy. 

On Wednesday, Fitch ratings said that while it had anticipated the power cuts would continue into 2023, "the further deterioration of electricity supply goes beyond our base case and presents downside risks to our forecast that economic growth will average 1.1% in 2023".

However, Fitch has not yet revised its growth projections due to higher-than-expected growth in the third quarter of 2022, which it believes "should limit the size of downward revisions to our 2023 growth forecast".

Fitch also has not revisited SA's credit rating of BB- with a stable outlook (three notches below investment grade) saying there is still headroom to absorb a temporary impact on economic metrics from load shedding. A failure to address loadshedding in the medium term or a further deterioration in the growth trajectory would be credit negative for SA. 

The agency was cautiously optimistic over the measures announced by President Cyril Ramaphosa in the State of the Nation Address, stating: 

The national state of disaster, and the appointment of a minister of electricity with responsibility for managing the crisis, could strengthen the government’s capacity to coordinate a response and accelerate practical measures to address power shortages, as it limits regulatory requirements. However, the generally poor track record on execution and Eskom’s governance problems, highlighted by the resignation of Eskom’s chief executive in December, suggests further delays are possible.

The Fitch statement follows one released by Moody's Investor Service last Friday headlined, "SA's longest stretch of power cuts is credit negative".

"We expect the blackouts' effect on businesses, consumer sentiment and investment will weaken the country's already subdued economic growth prospects and threaten social and political stability… Given South Africa's social inequities and high unemployment rates, social and political instability are likely to intensify, especially given the electricity regulator's January decision to grant an increase in electricity prices of more than 18%, effective 1 April," said Moody's. 

Both agencies noted the South African Reserve Bank's (SARB) downward revision to its 2023 growth forecast from 1.1% to 0.3% and the central bank's expectation power cuts will remove two percentage points from growth over the next three years.

Fitch forecasts that the fiscal deficit will stand at 5.1% at the end of the 2022/23 financial year, a widening compared to the National Treasury forecast of 4.9%. Moody's said it did not expect a major widening of the deficit as it expected that government would reduce spending commensurately. Moody's rates SA as Ba2 with a stable outlook, which is two notches into sub-investment grade.