DA blames Moody’s downgrade on Nene’s speech

2014-11-07 16:00

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The decision by Moody’s to downgrade South Africa’s debt-rating is a “significant rejection” of Finance Minister Nhlanhla Nene’s medium term budget policy statement, says the DA.

“The downgrade means that Moody’s and other foreign investors are less confident in the South African government’s ability to pay back its debt,” Democratic Alliance spokesperson Dion George said today.

“The government will have to borrow money at higher interest rates, placing more pressure on the state’s coffers.”

George said Moody’s would have looked closely at what Nene said on October 22 in his medium term budget policy statement.

“It is an indictment of the finance minister that Moody’s downgraded our debt status only 16 days after his speech. Clearly, he did not inspire confidence,” he said.

“To turn things around, Nene needed to propose bold new measures to cut corruption and waste, like calling for a ban on public servants doing business with the state.”

South Africa lost R30 billion to waste and corruption every year and yet nothing was being done to stop this, said George.

Yesterday, in a statement released on Moody’s website, the ratings agency said it had downgraded the South African government’s debt rating to Baa2 from Baa1.

“The government’s short-term debt rating is affirmed at a provisional Prime-2 ((P)P-2),” said Moody’s.

“The outlook on the rating was changed to stable from negative.”

There were two primary reasons for the rating downgrade.

The first was poor medium-term growth prospects due to structural weaknesses.

This included ongoing energy shortages, rising interest rates, investor climate deterioration and a less supportive capital market environment for countries such as South Africa, which were highly dependent on external capital.

The second reason was the prospect of further rises in the government debt-to-GDP ratio implied by the low-growth environment.

“Even strict compliance with the government spending ceiling and somewhat smaller fiscal deficits are unlikely to arrest in the near term,” said Moody’s.

“The assignment of a stable outlook reflected policymakers’ commitment to reining in government debt growth over the medium-term and the broad political support for a macroeconomic strategy.”

This included the National Development Plan and tighter monetary policy and fiscal restraint, which should help stabilise the debt burden over the medium-term.

George said the government had sunk billions of rands into “failing state-owned entities, which should have been partially or wholly privatised years ago.

“The latest medium term budget policy statement included another R270 billion for Eskom. There needs to be a radical rethinking of government’s approach to state-owned entities,” he said.

“Unfortunately there was nothing new in Nene’s policy statement and no real commitment to tackle the deficit, the waste in government or our failing state-owned entities.”

Instead, Nene announced R27 billion in new taxes, which only outsourced the problem to already burdened South African families.

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