[ad_1]
By ANA Reporter 
November 21, 2020
PRETORIA – The decision by international rating agencies Fitch and Moody’s to further downgrade South Africa’s rating is painful, Finance Minister Tito Mboweni said on Saturday.
“The government takes note of the following credit rating decisions made by the ‘big three’ rating agencies (S&P, Fitch and Moody’s): S&P has affirmed South Africa’s long-term foreign and local currency debt ratings at ‘BB – ‘and’ BB ‘, respectively The agency maintained a stable outlook: the National Treasury said in a statement.
According to S&P, the lockdowns associated with fighting the Covid-19 pandemic plunged South Africa into its sharpest quarterly economic contraction in the second quarter of 2020, leading to a large increase in the fiscal deficit and a rapid rise in public debt.
However, there were signs that the economy was beginning to recover in the third quarter.
Fitch had downgraded South Africa’s long-term local and foreign currency debt ratings to “BB-” from “BB.” The agency maintained a negative outlook. According to Fitch, both the downgrade and negative outlook reflected high and rising public debt exacerbated by the economic impact brought on by the Covid-19 pandemic, the Treasury said.
Furthermore, the very low growth trend and exceptionally high inequality would continue to complicate fiscal consolidation efforts.
Moody’s had downgraded South Africa’s long-term local and foreign currency debt ratings to “Ba2” from “Ba1.” The agency maintained a negative outlook. According to Moody’s, the downgrade reflected the impact of the pandemic’s impact, both directly on the debt burden and indirectly by intensifying the country’s economic challenges and social obstacles to reforms.
Furthermore, South Africa’s ability to mitigate the impact in the medium term was lower than that of many sovereign countries due to significant fiscal, economic and social constraints and rising borrowing costs.
“The government’s policy priorities remain economic recovery and fiscal consolidation, as outlined in President Cyril Ramaphosa’s economic recovery and reconstruction plan and in the medium-term budget policy statement released in October.
“The social pact agreed between the government, companies, workers and civil society gives priority to short-term measures to support the economy, along with crucial structural economic reforms,” said the Treasury.
“Fitch and Moody’s decision to further downgrade the country is painful. The downgrade will not only have immediate implications for our borrowing costs, it will also limit our fiscal framework. Therefore, there is an urgent need for the government and its social partners to work together to ensure that we maintain the inviolability of the fiscal framework and implement much-needed structural economic reforms to avoid further damage to our sovereign rating, ”said the Finance Minister , Tito Mboweni. it said in the statement.
Rating agencies had indicated that South Africa’s ratings strengths included a credible central bank, a flexible exchange rate, an actively traded currency, and deep capital markets, which should help counter low economic growth and fiscal pressures.
The government implored all members of society to adhere to all necessary health and safety protocols to prevent a second wave of Covid-19 infections, which would have significant adverse implications for the economy and plans to boost employment.
The impact of the Covid-19 pandemic hit South Africa at a difficult time. The recent downgrades saw South Africa reach its lowest credit rating levels of the “big three” rating agencies since 1994, the Treasury said.
Economic growth has continued to decline regardless of attempts to reduce structural constraints. The government’s financial strain caused by the pandemic, weak economic growth, a high wage bill, as well as continued support for financially weak state-owned companies, weakened public finances and led the government to accumulate debt.
Currently, the government had accumulated a debt stock of almost R4 trillion and spent around R226 billion on interest costs.
If the cost of borrowing money from the government increased, it meant that the government would have to cut social spending or tax more of the few people who were employed, which was bad for the country.
Further downgrades would amplify the impact of lockdown restrictions. These restrictions led to many workers being laid off because companies were temporarily closing doors and reducing operating costs.
Without disposable income and rising asset costs, it would be difficult to maintain a standard of living. Continual rating downgrades would translate into unaffordable debt costs, asset impairment (such as retirement, other savings, and property), and a reduction in disposable income for many.
Rating downgrades associated with Covid-19 had also led to the closure of many small businesses and the layoff of several workers. Operating costs were expected to rise along with borrowing costs, supporting the rationale for shifting costs to consumers or laying off more workers.
“Recent ratings results mean that South Africa needs to accelerate growth-enhancing strategies to rectify debt build-up and minimize costs associated with negative sentiment.
“Operation Vulindlela is a key initiative in this regard and demonstrates the government’s commitment to accelerate the implementation of critical reforms that boost economic growth and improve fiscal sustainability,” said the Treasury.
– African News Agency (ANA)
[ad_2]
