THE downgrading of South Africa's foreign credit rating by Fitch Ratings will hike borrowing costs, but the low worldwide interest rate environment will soften the blow.
This is according to Eskom chief economist Mandla Maleka, who added that "Eskom is currently borrowing cheaply" despite the downgrades that have befallen SA recently.
"The downgrades have had little impact on our borrowing costs because the economies of the US and Europe have been struggling and their interest rates are very low," Maleka said.
His comment came after London-based ratings agency Fitch downgraded South Africa's long-term foreign currency Issuer Default Rating to BBB from BBB+.
Citing reasons for the downgrade, Fitch said economic growth performance and prospects have deteriorated.
This has affected public finance and fuelled social and political tensions.
"In the five years to 2012 GDP (gross domestic product) growth averaged 2.2% in SA, compared with 4.7% for emerging markets as a whole," Fitch said in a statement.
"Weak growth reflects structural rigidities, declining competitiveness, policy uncertainty and labour unrest."
The report also cited rising corruption and worsening government effectiveness as constraining the government's ability to improve living standards, reduce the 25.5% unemployment rate and redress historical inequalities as rapidly as the population demands.
Maleka said: "If things were normal in the US and Europe and the interest rates were high, this would have had a big negative on the loans Eskom borrowed to finance the capital expenditure programme."
He said the downgrades would result in parastatals seeking long-term loans from foreign investors to attract a premium interest.
"The downgrade will likely result in loans requested by SA companies and government from foreign investors to attract a premium," he said.
'Credit downgrading has little effect on SA'
THE downgrading of South Africa's foreign credit rating by Fitch Ratings will hike borrowing costs, but the low worldwide interest rate environment will soften the blow.
This is according to Eskom chief economist Mandla Maleka, who added that "Eskom is currently borrowing cheaply" despite the downgrades that have befallen SA recently.
"The downgrades have had little impact on our borrowing costs because the economies of the US and Europe have been struggling and their interest rates are very low," Maleka said.
His comment came after London-based ratings agency Fitch downgraded South Africa's long-term foreign currency Issuer Default Rating to BBB from BBB+.
Citing reasons for the downgrade, Fitch said economic growth performance and prospects have deteriorated.
This has affected public finance and fuelled social and political tensions.
"In the five years to 2012 GDP (gross domestic product) growth averaged 2.2% in SA, compared with 4.7% for emerging markets as a whole," Fitch said in a statement.
"Weak growth reflects structural rigidities, declining competitiveness, policy uncertainty and labour unrest."
The report also cited rising corruption and worsening government effectiveness as constraining the government's ability to improve living standards, reduce the 25.5% unemployment rate and redress historical inequalities as rapidly as the population demands.
Maleka said: "If things were normal in the US and Europe and the interest rates were high, this would have had a big negative on the loans Eskom borrowed to finance the capital expenditure programme."
He said the downgrades would result in parastatals seeking long-term loans from foreign investors to attract a premium interest.
"The downgrade will likely result in loans requested by SA companies and government from foreign investors to attract a premium," he said.
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