“We see the likelihood of another rating change, whether upward or downward, to be quite negligible in the 12 to 18 months,” Kristin Lindow, senior vice president at Moody’s, said in an interview in Cape Town on Monday. “The way our outlooks work is they are rolling, so at any given time a stable outlook means that you think that in the next 12 to 18 months there will be no change.”
South Africa’s growth prospects have deteriorated as Eskom Holdings SOC Ltd. battles to keep its aging fleet of plants running. The state-owned utility, which supplies about 95 percent of the nation’s power, has implemented rolling blackouts on average every third day this year.
In a March 12 credit opinion, Lindow cut her 2015 growth forecast for Africa’s second-largest economy to 2 percent from 2.5 percent, and forecast that growth may only reach 3 percent in 2017.
“Ratings are supposed to be forward-looking and we were looking ahead at an extended period of low growth,” Lindow said. “That has seemed to be the most important vulnerability of the country. We have taken that into account and can tolerate that at this rating level.”
While the government is investigating selling a minority stake in Eskom or some of its power plants to help fund new generation capacity, that won’t provide a near-term solution to the nation’s energy crisis, she said.
“When it comes to solving this growth conundrum right now, the key is to build up the generating capacity and deal with the problems they are having both in construction and in repairs,” Lindow said. “We’re just likely to see these shortfalls, these power outages, continue. The economy is suffering, investment is suffering, the country’s reputation is suffering.”
Fitch Ratings Ltd., whose assessment is on the same level as that of Moody’s, and Standard & Poor’s, which rates the nation’s creditworthiness one step lower, are due to publish their reviews next month. Moody’s doesn’t have a set calendar for reviews.
“We have a situation for countries outside of the European Union where ratings can happen at any time,” Lindow said. “We try not to be unpredictable. A big consideration is when a country is moving in a negative way vis-a-vis its peers in the same rating category.”
©2015 Bloomberg News