JOHANNESBURG – Government has been given a clear warning by ratings agencies and economists: there needs to be fiscal change.
Standard and Poor’s Global dropped its rating for South Africa’s local currency debt to junk status at the weekend.
It has now joined ratings agency Fitch with both its local and foreign currency ratings below sub-investment grade.
Moody’s has placed the country on review, but kept its ratings at one notch above junk.
The Finance Ministry has responded to the ratings decisions by saying that next year’s February budget will outline decisive and specific policy measures to strengthen the fiscal framework.
However, Mike Schussler of economist.co.za disagrees.
“The problem with that is we’ve always been told we have plans. The problem is on the implementation side.”
Cosatu’s Sizwe Pamla says government has offered little financial direction.
“We are worried. Treasury could have done much more.”
Despite this, the ministry says it has noted the concerns by the ratings agencies and will present a plan to boost growth and improve business confidence.
But Business Leadership South Africa (BLSA) says there needs to be an urgent commitment to the broader economic crisis to avoid more downgrades.
COO Busi Mavuso says more needs to be done to stabilise the economy.
“There needs to be good governance around SOEs (state-owned enterprises). We shouldn’t be surprised that we’ve been downgraded, because we failed to address all the things we were requested to address by ratings agencies.”
Economist Hugo Pienaar says it’s critical that the February budget by the Finance Minister, Malusi Gigaba, shows a firm commitment to consolidating the budget over time.
“If we can do that, we may prevent a Moody’s downgrade, but this will take quite a bit of hard work for us to prevent that.”
Meanwhile, Democratic Alliance leader Mmusi Maimane says parties and organisations need to work together to constitute a new government which will upgrade South Africa to an investor friendly country.
“We’ve got great business people and we’ve got great public servants. I think we bring all those people together, we can fight this battle of ensuring that we turn the tide of South Africa’s investment grade.”
In a statement, BLSA CEO Bonang Mohale put blame on the government, saying the current administration seems to derive joy at scoring own goals.
He says many economic and political problems South Africans experience are rooted in corruption, state capture and political patronage resulting in a trust deficit.
Mohale says the two Cabinet reshuffles, mixed messages around nuclear capability, poor numbers, a lack of direction in the medium-term budget policy statement and most recently the resignation of Michael Sachs at National Treasury, have all sent a message of instability to ratings agencies.
Additional reporting by Pelane Phakgadi.
(Edited by Shimoney Regter)