The news of the further ratings downgrades by Moody’s and Fitch is a vote of no confidence in President Cyril Ramaphosa’s management of South Africa’s economic reform agenda, says the Democratic Alliance’s (DA) Geordin Hill-Lewis.
“The rating agencies’ decision is a clear message to the government saying, essentially, that “reform isn’t happening, and we don’t believe it will – or not at the speed required to make a difference.”
South Africa’s finance ministry said Saturday that the credit ratings downgrades by Moody’s and Fitch would increase the country’s borrowing costs and constrain its fiscal options.
“The key driver behind the rating downgrade to Ba2 is the further expected weakening in South Africa’s fiscal strength over the medium term,” Moody’s said in a statement.
“The decision by Fitch and Moody’s … is a painful one,” said Minister of Finance Tito Mboweni in reaction to Friday’s downgrade announcements.
Hill-Lewis, the DA’s shadow finance minister, said the downgrades follow the “disappointing Medium-Term Budget Policy Statement” (MTBPS) tabled by Mboweni, last month.
He noted that the MTBPS reversed the government’s position on South African Airways (SAA), opting to bail it out again to the tune of R10.5 billion.
And the MTBPS, he added, represented a relaxation in the government’s commitment to get debt under control by 2023.
“These two decisions undermine credibility and confidence in the government’s promised reform programme, leading to investors and ratings agencies questioning the sustainability of government finances.”
During last month’s mid-term budget, the National Treasury forecast South Africa would record a budget deficit of over 15% of GDP in the fiscal year ending March 2021, the highest in post-apartheid history.
Africa’s most industrialised nation currently has a debt of nearly R4 trillion, or 63.3% of the GDP. Its debt-to-GDP ratio is expected to swell to over 90% in three years, the worst such increase in the world, Reuters reported.
“There is an urgent need for government to implement structural economic reforms to avoid further harm to the country’s sovereign rating,” South Africa’s finance minister said.
Public sector wage bill
Mboweni’s medium-term budget last month outlined plans to trim government’s salary bill, which, according to Bloomberg, has surged 51% since 2008 as part of an effort to start bringing down the government debt trajectory after 2026.
The proposed wage freeze, however, risks a serious backlash from politically influential labor groups that are already in a legal battle with the government to honour an agreed pay deal.
If state salaries can’t be cut, there’s limited room for offsetting measures in other expenditure areas, Bloomberg added.
Hill-Lewis said these downgrades will be a blow to an economy that is already reeling due to years of “bad policy, looting, and the devastation of the lockdown.”
The consequences, he pointed out, will be higher costs of borrowing, more spent on servicing debt, and therefore less available for basic services.
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