On Friday, S&P Global lowered South Africa’s long-term foreign and local currency debt ratings by one notch each to “BB” and “BB+” respectively. It cited weak real nominal GDP growth that had led to further deterioration of South Africa’s public finances beyond the rating agency’s previous expectations.
Nonetheless, the rating agency changed the outlook to stable from negative, saying this reflected its view that South Africa’s credit metrics would be broadly unchanged next year and political distraction could abate following the ANC’s elective conference in December. This could help the government focus on designing and implementing measures to improve economic growth and stabilise public finances, it added.
Economists also warned that South Africa would not recover from this and was in deep trouble.
The DA, African Christian Democratic Party (ACDP) and the IFP said yesterday the blame should fall on President Jacob Zuma for wresting control of the budgeting process from the National Treasury and poor policy choices.
The Treasury said it was fixing the economy.
Dawie Roodt, chief economist at Efficient Group, said it was too late to do anything. "We are in deep trouble, bearing in mind the rand tumbled and it recovered again. It tells you the markets expected this. We will get a downgrade by Moody’s (in next year’s review after the Budget) and get out of that index. It’s too late to do anything. (Finance Minister Malusi) Gigaba won’t get it right by February. We will be downgraded and it will be painful,” said Roodt.
DA spokesperson on finance David Maynier blamed Gigaba for delaying hard decisions and for the escalation of the debt to R3.4trillion or 60% of the GDP by 2020/21. He said the ratings agencies had lost patience with South Africa for failing to fix the economy.
“The bottom line is that the ratings decisions of the two most important ratings agencies amount to a vote of no confidence in the new and mysterious 'Presidential Fiscal Commission's' capacity to stabilise public finances over the medium term in South Africa,” said Maynier.
IFP spokesperson on finance Mkhuleko Hlengwa blasted Zuma for stripping the Treasury of its powers and placing the budgeting process in his office.
ACDP leader the Reverend Kenneth Meshoe described the downgrade as bad news for the country because it would make it more difficult to borrow and if investors were jittery they would not invest in the economy. He said investors have been put off by the political uncertainty.
The downgrade would hit the poorest of the poor hard, he added. “It means the cost of living will increase. When the cost of living increases it is the poorest of the poor who bear the brunt.”
The ANC Youth League accused the ratings agencies of conspiring with some politicians to back Deputy President Cyril Ramaphosa to take over the party next month. ANCYL spokesperson Mlondi Mkhize said ratings agencies should not take sides in the ANC’s leadership battle.
Also on Friday, Moody’s Investors Service placed South Africa’s long-term foreign and local currency debt ratings of “Baa3” on a 90-day review for a downgrade.
The ratings carry a negative outlook. According to Moody’s, the decision to place South Africa’s rating on review for a downgrade was prompted by a series of recent developments which suggested that South Africa’s economic and fiscal problems were more pronounced than Moody’s had previously assumed.
According to the rating agency, growth prospects were weaker and material budgetary revenue shortfalls had emerged alongside increased spending pressures.
The Treasury said it was aware of the implications of the downgrade and investor sentiments.
“The Presidential Fiscal Committee is seized with the task of restoring business confidence in the immediate term and executing decisively growth-enhancing measures previously announced.
"Speculative grade ratings have negative implications for economic growth, borrowing costs for the economy as a whole, state-owned companies’ ability to borrow and the ordinary person on the street,” said the Treasury. In the Budget next year, Gigaba would announce a package of measures to reignite growth in the economy, it said.
In addition, the commission of inquiry will deal with the R50billion shortfall in revenue collection by the SA Revenue Service.
Political Bureau and ANA