South africa Currency Rands
South africa Currency Rands

The South African government on Saturday pledged to carry out urgent reforms to improve economic performance following the country’s credit rating downgrade from stable to negative.

“Economic reforms have to be implemented without delay,” the National Treasury said.

The government is fully aware that short- and medium-term reforms are urgently required to improve economic performance over the next several years, the Treasury said in a statement after international rating agency Moody’s on Friday night downgraded South Africa’s credit rating from “stable” to “negative.”

South Africa’s credit ratings by Moody’s remain investment grade (one notch above non-investment grade).

But the latest downgrade is seen as the final step before Moody’s strips South Africa of its “investment grade” Baa3 long-term foreign-currency and local-currency issuer rating, which will leave it at “junk.”

Two other major international rating agencies – S&P Global Ratings and Fitch – have placed South Africa’s creditworthiness to sub-investment grade (commonly known as junk status).

The government notes the decision by Moody’s to affirm South Africa’s long term foreign and local currency debt ratings at ‘Baa3’ and also revise the outlook to negative from stable, the Treasury said.

According to Moody’s, the outlook revision reflects the material risk that the government will not succeed in arresting the deterioration of its finances through a revival in economic growth and fiscal consolidation measures, and the challenges the government faces which are evident in the continued deterioration of South Africa’s economic growth and public debt burden trends, despite on-going policy responses.

The “Baa3” credit rating affirmation reflects South Africa’s deep, stable financial sector and robust macroeconomic policy framework, set against on-going challenges related to weak potential growth and strong fiscal pressure, said Moody’s.

The agency further acknowledged the South African Reserve Bank’s demonstration of a good track record in implementing credible and effective monetary policy and preserving financial stability.

The rating affirmation affords South Africa a narrow window to demonstrate faster and concrete implementation of reforms that are already underway aimed at lifting growth and returning public finances to a more sustainable path, the Treasury said.

It said the government has made progress on the measures, including the introduction of a visa regime to support tourism, approval of the revised Integrated Resource Plan providing certainty around the government’s preferred energy mix, and release of telecommunications policy directive for spectrum licensing which provides a framework to enable the regulator to issue licenses, according to the Treasury.

The Treasury said it would take measures, as stipulated in its document “Economic Transformation, Inclusive Growth, and Competitiveness: Towards Economic Strategy for South Africa,” to promote investment, job creation and restore growth momentum. Enditem

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