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S&P flags SA govt funding to SOEs as risk

S&P Global says while it anticipates improved economic conditions for SA, the expected growth rate of between 1.3% and 1.5% remains disappointing.

FILE: A Standard & Poor's document. Picture: AFP

CAPE TOWN – Standard & Poor’s Global Ratings has reiterated the continued financial support granted to state-owned entities (SOEs), like Eskom, poses a risk to the country's credit rating.

The credit rating agency made the comments during the Cape Town leg of its conference on the country's outlook for 2017 on Thursday.

S&P Global says while it anticipates improved economic conditions for South Africa, the expected growth rate of between 1.3% and 1.5% remains disappointing.

S&P associate director Gardner Rusike warns that government-backed debt for SOEs could be a pitfall.

“At some point, it may hurt government’s balance sheet and that can hit through to government’s sovereign rating.”

S&P Global reiterated its concerns on Tuesday about weak economic growth, political tensions and policy reform in South Africa, which faces the prospect of downgrades to its sovereign credit ratings which would raise the cost of borrowing.

The political temperature has been rising ahead of the African National Congress' (ANC) key policy and leadership conferences this year, to chart the country's economic and political course. A successor to President Jacob Zuma as head of the party is due to be elected at the ANC's conference in December.

"If we see a lot increasing political tensions, infighting in state institutions which could derail the government’s plans in boosting economic growth then that can impact on our forecasts on growth," Rusike said.

S&P has cited "political turmoil and tension" before and the issue clearly remains high on the investment radar screen.

Additional reporting by Reuters.

(Edited by Shimoney Regter)

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