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Treasury on second downgrade blow: Stay positive!

Apr 07 2017 16:38
Carin Smith

Cape Town - Treasury urged South Africans to remain positive and continue to work hard in turning the economy around.

This was its response on Friday afternoon after yet another downgrade blow struck the country.

Fitch Ratings downgraded the government’s long-term foreign and local currency debt to 'BB+' from 'BBB-' with a stable outlook. This is a non-investment grade rating.

On Monday ratings agency S&P downgraded SA's long-term foreign currency rating to sub-investment "junk status".

Both Fitch and S&P emphasised President Jacob Zuma's Cabinet reshuffle of last Friday - especially the dismissal of former finance minister Pravin Gordhan and his deputy Mcebisi Jonas - as key reasons for the downgrades, leading to concern about political stability.

Treasury, however, in its response to the Fitch downgrade emphasised that SA has tremendous potential.

"By working together we can make South Africa an increasingly attractive investment destination," said Treasury.

"The announcement by Fitch is noted by government and, while it is a setback, government remains committed to making sure that its work with business, labour and the civil society continues in order to improve the business confidence and implement structural reforms to accelerate inclusive economic growth."

READ: BREAKING: Fitch downgrades SA to junk status

Political events

Treasury acknowledges Fitch’s view that recent political events, including a major Cabinet reshuffle, will weaken standards of governance and public finances.

In Fitch’s view, the Cabinet reshuffle is likely to result in a change in the direction of economic policy, to undermine progress in state-owned companies’ governance, raising the risk that the contingent liabilities associated with these entities are realised and increase the prospect of a substantial increased issuance of guarantees in respect of a nuclear build programme.

To this Treasury responded by saying the government would like to reaffirm its full commitment to the policy stance contained in the president's State of the Nation Address and Budget 2017.

Treasury said government remains committed to the fiscal policy trajectory outlined in Budget 2017 and implementing reforms to improve governance in state-owned companies.

It further gave the undertaking that government will be maintaining the expenditure ceiling and ensuring the stabilisation of government debt.

Furthermore, Treasury said it will be ensuring that nuclear procurement will be transparent and implemented at a scale and pace that the country can afford.

Fast-tracking the implementation of structural reforms aimed at boosting economic growth as contained in the 9-point plan, is another undertaking given by Treasury.

"To this end - and as acknowledged by Fitch - economic growth is expected to be higher this year than in 2016, then rising further over the medium-term," concluded Treasury.

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