28 September 2012
The government remained committed to lifting the growth potential and competitiveness of the economy, the National Treasury said on Thursday after Moody’s downgraded South African government bonds by one notch, bringing it in line with other ratings agencies.
Moody’s downgraded the rating of the RSA government bonds to “Baa1” from “A3” with a negative outlook, citing “increased socioeconomic stresses”, “relatively high labour costs despite high unemployment”, and a negative investment climate in light of infrastructure shortfalls.
Moody’s also raised concern about South Africa’s future political stability, saying the rating outlook remained negative “because of uncertainty as to whether the policy decisions being devised ahead of the December leadership conference of the African National Congress will be helpful or detrimental to the country’s growth and competitiveness outlook.”
The downgrade brings Moody’s rating to the same level as that of rival agencies Fitch and Standard and Poor’s.
All areas ‘currently being addressed’
In response, the Treasury said that all of the reasons given by Moody’s for the downgrade were currently being addressed through various government programmes.
“Some of the drivers of the downgrade have their roots in the protracted crisis in the Eurozone, South Africa’s significant trading partner,” the Treasury added.
Noting that the core of South Africa’s macroeconomic policies remained stable and predictable, the Treasury said the government remained committed to taking the necessary measures to lift the growth potential and competitiveness of the South African economy, as detailed in Finance Minister Pravin Gordhan’s 2012 Budget.
Massive infrastructure drive
These included massive investment in infrastructure to increase the capacity of the country’s networks, and strengthening the country’s fiscal buffers by reducing the deficit and stabilizing the national debt within the next two to three years.
The government would also be instituting a range of measures, including regulatory reforms, to improve the competitiveness of the manufacturing sector, while redirecting its exports to countries that showed more resilience, such as the rest of Africa, China and the rest of East Asia.
At the same time, the Treasury said, the government would continue to invest heavily in education and skills development.