The decision by rating agency S&P Global to downgrade South Africa’s long-term local currently rating and the long-term foreign currency debt has serious consequences for the poorest of the poor, with a catastrophic impact on the country’s economic prospects, the Banking Association of South Africa (BASA) said on Saturday.
“While S&P did move South Africa from negative watch to stable, the agency noted that economic policy in our country is currently focused on redistribution and not growth, which has caused it to stagnate,” BASA MD Cas Coovadia said.
“Fiscal policy needed to be adjusted to make the hard decisions that drove competitiveness and growth. Political meddling in our institutions and continued bailouts of non-performing SoEs [state-owned enterprises] is wreaking havoc on our economy,” he said.
The country needed a clear, stable, and certain policy to generate economic growth. “We repeat our call that it is imperative that the ANC emerge from its elective conference (in December) with a new leadership that grasps this urgency and is committed to placing our economy on a path of growth, competitiveness, and inclusiveness.
“Anything else will accelerate the downward spiral of declining confidence, reduced investment, slower growth, weaker public finances, and greater inequality. We can no longer afford to do nothing,” Coovadia said.
On Friday, S&P lowered South Africa’s long-term foreign and local currency debt ratings by one notch each to “BB” and “BB+” respectively, citing 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, S&P changed the outlook to stable from negative, saying the stable outlook reflected their view that South Africa’s credit metrics would remain broadly unchanged next year, and political distraction could abate following the African National Congress’s elective conference in December, helping government focus on designing and implementing measures to improve economic growth and stabilise public finances.
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 carried 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.
Moody’s further indicated that the review would allow it to assess the South African authorities’ willingness and ability to respond to the above rising pressures through growth-supportive fiscal adjustments that raised revenues and contained spending; structural economic reforms that eased domestic bottlenecks to growth; and improvements to SoE governance in light of government exposures to contingent liabilities.
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