Economists: Govt will have less money for critical services after downgrade

Economists say this news was expected but it is still a huge shock because of the implications for our economy.

FILE: A Standard & Poor's document. Picture: AFP

JOHANNESBURG – Economists are warning that all South Africans are waking up poorer this morning and that government will have less money to spend on critical services after last night’s decisions by two international ratings agencies.

On Monday evening, Standard & Poor’s Global ratings said it was downgrading the country’s sovereign credit rating status to junk, then Moody’s said it would review the country’s rating.

Johannesburg Stock Exchange CEO Nicky Newton-King says this news is catastrophic for the economy.

Economists say this news was expected but it is still a huge shock because of the implications for our economy.

Nicky Newton-King says it’s going to affect everyone.

“There will be less for service delivery, for the very much vulnerable people in our society. It would mean much-delayed opportunity to really build growth and put the local market under pressure.”

Meanwhile, Congress of South African Trade Union (Cosatu) says that President Jacob Zuma - and the way he reshuffled his Cabinet - is responsible for this.

The federation’s Sizwe Pamla says Zuma should have done more to avoid a downgrade.

“We’re worried and we actually do blame the manner in which the president has carelessly managed the issues of both the Cabinet reshuffle and also how he has managed the economy of the country that we find ourselves in.”

THE ANNOUNCEMENT WAS NOT UNEXPECTED

There has been general shock by economists to the decision of Standard & Poor’s Global to downgrade South Africa to junk status.

Rating agencies had warned that political instability in the country could lead to a downgrade.

S&P Global has become the first agency to make the move, downgrading the country to BB+ from BBB minus.

The agency has highlighted the executive changes initiated by President Jacob Zuma, saying these have put at risk fiscal and growth outcomes.

Nedbank Economist Isaac Matshego says: “The announcement was not unexpected but these things, when they happen, they still shock us.”

Investment Solutions Lesiba Mothata says there may be more bad news.

“We may have two rating agencies having downgraded South Africa to junk status in under a week.”

Argon Asset Management’s Thabi Leoka says: “They did warn us that they will downgrade us if they felt that politically, politics undermine economic policy adoption.”

TREASURY REASSURES CITIZENS

The Treasury has given its first reaction to the Standard & Poor’s downgrade, saying the country is committed to a predictable and consistent policy framework, which responds to changing circumstances in a measured and transparent fashion.

Treasury says while the leadership of the finance portfolio has changed, government’s overall policy remains the same.

Spokesperson Mayihlome Tshwete says: “Whatever changes happen in the political executive, the policy of government remains the same. The direction that government is trying to undertake remains the same.”

Tshwete says government remains committed to a measured fiscal consolidation that stabilises the rise in public debt.

“Commitment to the budget that have already been passed through to Parliament remains the same. So these are issues that we’re going to be quite clear on, in terms of our messaging.”

Treasury says the latest developments call for South Africans to reflect on the need to sustain and act with urgency to accelerate inclusive growth and development.

(Edited by Leeto M Khoza)