(Adds CDS data, background on restructuring plan)
JOHANNESBURG, Oct 3 (Reuters) - South Africa’s public debt could rise as high as 95% of gross domestic product by 2024 if the government doesn’t restructure the state-run utility Eskom and implement a workable growth plan, the Institute of International Finance said in report.
The report, released late on Wednesday, echoes a warning on Tuesday by the central bank about government debt, which has doubled from less than 30% of GDP before the 2008 global financial crisis to nearly 60%.
The 95% estimate is the worst of four outlooks the IIF report laid out. But even its baseline case shows debt rising to 70 percent of GDP, according to the IIF, a trade group of financial institutions that tracks market conditions worldwide.
“South Africa’s debt sustainability is increasingly in question,” the IIF said in its report.
The South African economy expanded 0.8% in 2018, and in February the National Treasury said it expected 1.5% growth in 2019. But it has since warned it might have to lower that forecast, especially after it granted Eskom a 59 billion-rand, two-year bailout package.
The IIF said a proposed plan to shift Eskom’s debt to the government would add 6 percentage points to South Africa’s sovereign debt.
“The key for an improvement of the situation is the implementation of the national growth plan and Eskom restructuring blueprint,” it said. “Investors and rating agencies will follow the October and February budget announcements closely.”
Finance Minister Tito Mboweni is set to deliver his medium- term budget on Oct. 30. He is expected to give details of President Cyril Ramaphosa’s plan to split Eskom into three units, generation, transmission and distribution.
Labour unions that backed Ramaphosa’s presidential campaign, as well as factions inside the ruling African National Congress, oppose the plan, raising fears that it may not materialise.
Moody’s, the last of the top three ratings firms to still rank Pretoria’s debt at investment grade, said in September it was unlikely to cut the rating to junk anytime soon, but that the delay over reforming Eskom was a major risk.
Investors, however, seem to expect a downgrade soon.
An S&P Capital IQ model, based on credit default swap prices, shows that markets have begun to price in a downgrade. Since September, the cost of five-year swaps ( rose 20 basis points to 200 bps on Wednesday, a two-month high, according to data from IHS Markit. (Reporting by Mfuneko Toyana in Johannesburg; additonal reporting by Marc Jones in London; editing by Larry King)