Pretoria – Treasury knew about S&P’s decisions to downgrade South Africa’s sovereign rating to junk status on Friday, said new Finance Minister Malusi Gigaba.
The minister held a press briefing at Treasury on Tuesday following Standard & Poor’s (S&P) review of the sovereign rating to sub-investment grade. S&P downgraded South Africa from BBB- to BB+ with a negative outlook, or junk status.
Last night Treasury issued a statement on the downgrade, saying that even though the S&P rating for foreign currency-denominated debt was at sub-investment grade, rand denominated debt which is the majority (90%) of the debt portfolio remains investment grade.
Moody’s subsequently issued a statement indicating that South Africa has been placed on review for a downgrade.
Gigaba explained that he had not told the press of S&P’s decision to downgrade South Africa previously, as the information was relayed to him in confidence. A decision was made not to meet with S&P as their decision was final, “water under the bridge”.
“They had taken me into their confidence… I could not divulge the contents they disclosed to me.” He said that Treasury intends to engage with S&P’s going forward.
Treasury instead chose to engage with Moody’s and Fitch, who had not made their decision yet.
On what was discussed with Moody’s and Fitch, Gigaba said that he could not go into detail about the discussions. “In general terms we discussed issues related to our (his and Sfiso Buthelezi’s) appointment, policy issues and changes that have taken place in the executive.”
In an effort to avoid a downgrade by Moody’s and Fitch, Gigaba said that he has written a letter to the ANC, which is yet to be signed off, requesting a meeting to discuss the role of political management to change.
He will also reach out to businesses, banks, and labour to “seek opportunities” to meet with them and discuss how to “move forward”. “We need to be forward-looking,” Gigaba said. He added that there is no need to have despondency following the downgrade, as the political and fiscal risks can be managed.
On the views of ratings agencies, Gigaba said that assessments impact how the South African economy is viewed by investors. "We must engage constructively and take decisions as Treasury and government that are going to assist us in execution of the mandate concerned."
WATCH: Gigaba's speaks out at Tuesday press conference
FULL STATEMENT: S&P cuts SA to junk status, fears political risks
At the briefing, Gigaba reiterated that although leadership had changed, policies had not and that government would remain committed to fiscal consolidation. Government will also remain committed to its collaborative work with labour and business.
In a statement sent last night, Treasury stressed that reliance on foreign savings to fund investment must be reduced. “Relying less on debt to finance public expenditure will secure South Africa’s fiscal sovereignty and economic independence,” the statement read.
Among the reasons for the downgrade, listed by S&P, for the downgrade include the executive changes by President Jacob Zuma. S&P said these changes had put at risk fiscal and growth outcomes. S&P added that contingent liabilities to the state are rising.
“The negative outlook reflects our view that political risks will remain elevated this year, and that policy shifts are likely, which could undermine fiscal and economic growth outcomes more than we currently project,” S&P said. The next rating publication is scheduled for June 2.
Stanlib chief economist Kevin Lings said that S&P could revise the credit rating lower at year-end if fiscal parameters deteriorate significantly.
Lings said that it is likely Moody’s will also downgrade South Africa’s credit rating by one notch to Baa3 this week, retaining a negative outlook. Baa3, is still one notch above junk status.
“Fitch will also most-likely downgrade South Africa,” said Lings. He explained that there is a chance that the outlook might be revised from stable to negative but Fitch could also downgrade South Africa to junk status.