Pretoria – While South Africa has its challenges, the country should not be desponded following announcements made by rating agencies, Finance Minister Malusi Gigaba said on Tuesday.
South Africa currently has R2.2 trillion in public debt, with approximately 10% of this debt being denominated and repaid in foreign currency.
On Monday, Standard & Poor’s lowered its credit rating for this portion of the country’s public debt to below investment grade.
“Our rand denominated debt, which constitutes 90% of the debt portfolio, remains investment grade rated. Moody’s, which continues to rate government debt two notches above sub-investment grade, has indicated their intention to review the rating,” the Minister said.
Addressing media at the National Treasury offices in Pretoria, Minister Gigaba — who earlier in the day held a meeting with former Finance Minister Pravin Gordhan — said while the decision is a setback for South Africa, he is confident in the South African economy.
“We acknowledge that yesterday’s announcement was a setback. Despite our current challenges, now is not the time for despondency. We have many strengths we can leverage to grow our economy inclusively. We will act decisively as government,” he told media following the meeting.
The main reasons given by S&P for the downgrade include the recent executive changes, which they say have put at risk fiscal and growth outcomes.
The Minister said the decision by Moody’s to initiate a review for a downgrade was prompted by the abrupt change in leadership at key government institutions.
“A country’s investment grading becomes junk status when two of the three ratings agencies actually downgrade it to that status. What this means is that it’s a setback but we have no reason to be despondent,” he said.
Commitment to fiscal consolidation
Minister Gigaba said while the executive leadership of the finance portfolio has changed, government’s overall policy orientation remains the same.
“Government has been and will remain committed to a measured fiscal consolidation that stabilises the rise in public debt. The fiscal trajectory that our country is pursuing will continue. Our fiscal objectives remain unchanged. We are committed vigorously to pursuing economic growth in an inclusive way,” he said.
He said South Africa, which recognises the concerns raised by the rating agencies, will address these concerns.
He said, however, the agencies have acknowledged South Africa’s strengths, which include a stable monetary framework, giving government confidence.
“Going forward, we will be dedicating energy to engage with business leaders, organised labour and rating agencies. We will act with urgency to accelerate inclusive growth and development so that we can reverse poverty, unemployment and inequality,” said Minister Gigaba.
Government has said there is a need to reignite South Africa’s growth engine.
Plans to meet rating agencies
Minister Gigaba said he intends in the near future to lead a delegation of stakeholders to meet with rating agencies, including Moody’s and Fitch, which will announce its rating decision on Friday.
“We need to address perceptions about political stability and reassure them of our intention to steer the course,” said the Minister, adding that government has not abandoned radical economic transformation, with a focus being set on industrialising the economy.
Meanwhile, the Minister said he intends to meet with stakeholders such as Chief Executive Officers of banks as well as labour.