Finance Minister Tito Mboweni has urged South Africans to work together to avoid a downgrade of the credit rating to junk status.
Treasury on Friday night issued a statement responding to the latest decision by ratings agency Moody's to downgrade the outlook for the country's credit rating from stable to negative. This is the final step before the country loses its investment grade Baa3 long-term foreign-currency and local-currency issuer rating.
Treasury has called Moody's decision a "narrow window" to show the ratings agency efforts are being made to implement reforms that will lift growth and stabilise public finances. These reforms must be implemented without delay, Treasury said.
The finance minister had hoped Moody's would keep the rating as it is, and even said he would call on the prayers of the African Christian Democratic Party because things were "not looking good", Fin24 reported.
"Fellow South Africans, now is the time to roll our sleeves and do what we need to do. It is now or never. We need all hands on deck.
"Government, labour, business and civil society, we need each other more than ever before. This country is ours and it is only us who can turn it around," Mboweni said in the statement.
Treasury noted that there had been some progress in economic reforms announced by the president in September 2018. These include an e-visa regime to support tourism, the approval of an Integrated Resources Plan and the release of a telecommunications policy directive for spectrum licencing. However, Treasury is of the view short to medium reforms are required to boost economic growth- these are proposed in the economic discussion document. The second version was published on October 30, simultaneously with the tabling of the medium-term budget policy statement.
The medium-term budget policy statement has also stated that debt stabilisation would require difficult decisions such as curtailing the growth of the public sector wage bill and additional tax revenue measures to reduce government's debt burden, Treasury said.
Government's debt-to-GDP ratio is currently 61% and will grow to above 71% of GDP by 2022. Earlier this week, Mboweni told members of Parliament that the debt-to-GDP ratio is "galloping" towards 80%.
In its review, Moody's said a rating upgrade is unlikely in the near future. The outlook could be upgraded to stable if there was evidence that government was working towards improving debt ratios.
"Moody's would likely change the rating outlook to stable if it were to conclude that the government will succeed in stabilising its debt ratios over the medium term, by reining in expenditures, improving tax compliance and by lifting potential growth," the report read.
"Moody's will have regard to a number of factors in this respect, including the government's progress early on in its tenure in delivering the additional fiscal adjustments which the MTBPS (medium-term budget policy statement) identifies are needed, but also in addressing long-standing issues related to corruption and the financially weak SOEs (state-owned enterprises) sector, and in particular at Eskom. If achieved, these should ultimately enhance business confidence and private sector investment prospects," Moody's said.
Stanlib chief economist Kevin Lings has warned that SA is likely to be downgraded to junk within the next year.
"Moody's review of SA government finances is scathing. Moody's thinks that there is a material risk that government will not succeed in stopping the fiscal deterioration. They are very critical of government's ability to implement reforms. Expect a full downgrade to junk next year," he tweeted early on Saturday morning.