South Africa to outline ‘decisive’ policy in 2018 after debt rating cut

A woman waves the South African flag during a demonstration in Pretoria, calling for president Jacob Zuma to resign, in April 2017

Marco Longari | Getty Images

A woman waves the South African flag during a demonstration in Pretoria, calling for president Jacob Zuma to resign, in April 2017

South Africa will use its annual budget next year to outline “decisive” policy to strengthen its fiscal framework, the finance ministry said on Saturday after S&P Global Ratings cut its local currency debt to “junk” status.

S&P announced the downgrade on Friday, citing a further deterioration from the country’s economic outlook in addition to also also public finances. Moody’s, meanwhile, placed South Africa on review for a downgrade.

“The 2018 Budget will outline decisive in addition to also also specific policy measures to strengthen the fiscal framework,” the finance ministry said in a statement, without giving more detail.

The downgrade by S&P comes after Finance Minister Malusi Gigaba shocked markets on Oct. 25 by flagging sharply weaker growth expectations, a wider budget deficit in addition to also also rising government debt.

The government has since appointed a judicial commission of inquiry into the causes of a 50 billion rand ($3.6 billion) revenue shortfall in addition to also also to investigate a possible erosion into the nation’s revenue collection capability.

Economic growth has slowed to near zero in recent years in addition to also also business in addition to also also consumer sentiment have plumbed multi-decade lows as political uncertainty weighs on the economy.

Infighting within the ruling African National Congress ahead of a conference in December to elect a successor to President Jacob Zuma as party chief has also sapped investor confidence.

“Restoring business in addition to also also consumer confidence, in addition to also also catalyzing inclusive growth can be the top priority of government,” the finance ministry said.

South African businesses have been in talks with government more than a year to try to avoid credit ratings downgrades, however when Zuma in March replaced finance minister Pravin Gordhan with Gigaba, S&P in addition to also also Fitch cut its ratings a notch within a week.

Nedbank, one of the nation’s largest lenders, on Saturday warned which the latest move by S&P will make the item more expensive for government in addition to also also the private sector to raise funding.

“The February budget statement can be South Africa’s last chance to demonstrate the structural reforms in addition to also also fiscal consolidation which are required to improve economic growth prospects in addition to also also prevent Moody’s via also downgrading the local currency debt to below investment grade,” Chief Executive Mike Brown said.

A Moody’s downgrade would likely trigger the exit of South Africa’s local currency debt via important global bond indices, Brown added.

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