Full impact of downgrades has yet to hit SA - Coovadia

Cape Town – South Africa has yet to experience the full impact of credit rating downgrades, Banking Association South Africa MD Cas Coovadia warned on Saturday.

The warning came as Moody’s downgraded the country’s long-term foreign and local currency debt ratings one notch from Baa2 to Baa3, and gave it a negative outlook.

Earlier this year, following the Cabinet reshuffle where President Jacob Zuma replaced former Finance Minister Pravin Gordhan with former Home Affairs Minister Malusi Gigaba, the ratings agency placed South Africa on review for a downgrade.

At the time both Fitch and S&P downgraded the foreign currency rating to junk status.

FULL STATEMENT: Moody's downgrades SA

“We have not yet experienced the full impact of the downgrades by S&P and Fitch primarily because of dollar weakness and other global conditions,” Coovadia said in statement on Saturday.

“Also, SA’s improved agricultural output has helped reduce inflation, which has helped keep interest rates steady.

“The South African economy, however, has sunk into recession,” Coovadia said. “The medium to long-term impacts of these downgrades will be significant and will put additional pressures on an already weak economy.

“We thus need a sense of urgency from government to address critical blockages, most of which are in government's domain.”

National Treasury warned on Friday that the negative outlook “indicates that the risk of further downgrades is still there”.

Coovadia said that the “failure by government to deal with concerns relating to certainty around key economic policy areas, significant ongoing uneasiness around leadership and an outright failure to successfully implement efforts that grow the economy or create jobs all point to a bleak future despite us narrowly avoiding a third junk-status downgrade."

READ: CEOs warn against populist rhetoric as Moody’s downgrades SA

“Unemployment is at its highest levels in over a decade and real GDP has begun to contract," Coovadia said. "Both factors point to the impact of these earlier ratings downgrades and reaffirm the very real social and economic shock that is already impacting all South Africans.

“In the absence of clear political leadership and policy certainty, BASA remains convinced that it is incumbent for business, labour and civil society to work jointly in the national interest of our country.”

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