POLITICS

Rating downgrades major setback for SA economy - David Maynier

DA MP says country is now hovering just above a non-investment grade, or "junk status" rating

Sovereign ratings downgrade a major setback for the economy in SA

5 December 2015

The sovereign ratings downgrade by Standard & Poor’s to BBB- (Negative Outlook) and Fitch Ratings to BBB- (Stable Outlook) is a major setback for South Africa.

South Africa is now hovering just above a non-investment grade, or “junk status”, international investment rating.

To a large degree, the sovereign ratings downgrade was a self-inflicted economic wound, with ratings agencies raising serious concerns about: 

- low economic growth which is expected to be 1.4% in 2015;

- structural constraints to economic growth including a shortage of electricity and delays in new electricity generation capacity; 

- weak business confidence as a result of economic policy uncertainty; and

- fiscal risks posed by state-owned enterprises including Eskom, South African National Roads Agency (SANRAL) and South African Airways (SAA).

The sovereign ratings downgrade, taken together with the expectation of future ratings downgrades, may result in increased debt service costs, which are expected to rise from R127.9 billion in 2015/16 to R174.6 billion in 2018/19.

An increase in debt service costs, which is already the fastest growing expenditure item in the budget, may in turn crowd out spending on service delivery.

The fact is that unless there is an about-turn on economic policy, aimed at increasing private sector investment, to boost economic growth and job creation, it will not be long before South Africa is downgraded to “junk status”.

In the end, the sovereign ratings downgrade is a vote of no confidence in President Jacob Zuma’s capacity to reverse the low growth, high unemployment spiral in South Africa.

Statement issued by David Maynier MP, DA Shadow Minister of Finance, 5 December 2015