Cape Town – Fitch Ratings' downgrade of South Africa is a vote of no confidence in newly appointed Finance Minister Malusi Gagaba's ability to hold the fiscal line and stabilise debt, the Democratic Alliance said on Saturday.
Gigaba’s attempts to restore confidence and engage ratings agencies failed to convince Fitch not to downgrade South Africa, DA spokesperson David Maynier said on Saturday.
"The fact is that the decision by Fitch to downgrade our long-term foreign currency debt and long-term local currency debt to 'BB+', or 'junk status', with a 'stable outlook', is a vote of no confidence in the minister’s ability to hold the fiscal line and stabilise debt," he said.
This should come as no surprise given that Gigaba was trying to convince the ratings agencies that he could hold the fiscal line and implement “radical economic transformation”, which was simply not credible. It was not good enough for Gigaba to simply concede the ratings downgrade was a “setback”.
He needed to roll up his sleeves and get into the fight to avoid further ratings downgrades. "The minister’s number one priority should be to avoid the nightmare scenario where massive forced selling of our debt triggers an economic meltdown that will spare nobody, rich or poor," Maynier said. This could happen if S&P Global and Moody’s downgraded South Africa's long-term local currency debt, which made up about 90 percent of South Africa's debt, to “junk status”.
"However, the problem is that the ratings agencies do not trust the minister; they regarded him as a presidential minion ready to carry out any instruction no matter how damaging to the economy."
To re-establish trust, Gigaba would have to show, rather than tell, ratings agencies that he was serious about avoiding further downgrades by delivering “quick wins”, starting with saying “no” to bailouts for “zombie” state-owned entities such as the SABC, Maynier said.