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Downgrades: Crucial for SA to maintain fiscal plan, discipline

Apr 07 2017 17:50

Cape Town - It is now more crucial than ever that South Africa maintains continuity with its fiscal plan and apply strict discipline in managing the country's finances, the CEO Initiative said on Friday.

The CEO Initiative is formed of leaders from various sectors and reacted to the news that SA debt got dealt a second blow in a week. Fitch joined S&P on Friday by cutting the nation’s credit assessment to junk following President Jacob Zuma’s move to fire Pravin Gordhan.

Above all else, it cautioned against SA being drawn into borrowing even more money that would have to be repaid at higher rates of interest following this week's downgrades.

Fitch downgraded SA's unsecured foreign-currency and local-currency bonds to non-investment "junk" status.

"The well-being of all South Africans has been dealt another blow following the downgrade of SA’s long-term foreign currency sovereign credit rating to sub-investment grade by a second ratings agency, Fitch," the CEO Initiative said in a statement.
 
"In addition, Fitch also downgraded their ratings of the long-term rand-denominated sovereign credit rating to sub-investment grade. This is particularly concerning given that approximately 90% of all government debt is rand-denominated."

READ: Treasury on second downgrade blow: Stay positive!

Fitch attributed these downgrades to its “view that the cabinet reshuffle which involved the replacement of the finance minister, Pravin Gordhan and the deputy finance minister, Mcebisi Jonas, is likely to result in a change in direction in economic policy and is likely to undermine, if not reverse, progress on SOE governance, raising the risk that SOE debt could migrate onto government’s balance sheet”.

These are essentially the same reasons that Standard and Poor’s gave for its recent downgrade, the CEO Initiative pointed out.
 
"Unfortunately, ordinary South Africans will pay the price of these actions for many months to come," cautioned the CEO Initiative.
 
It said it remains committed to working with the government and labour in creating an environment that is conducive to sustainable and inclusive growth for the benefit of all who live in South Africa.

Read Fin24's top stories trending on Twitter:

ceo initiative  |  fitch  |  sa economy  |  downgrade
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