7 November 2014
Moody’s decision to downgrade South Africa’s credit rating confirms the need for the country to implement growth-inducing initiatives.
Responding to credit rating agency Moody’s Investor Services decision on Thursday, 6 November to downgrade South Africa’s credit rating from Baa1 to Baa2, National Treasury said the slowdown in the economy has spurred government to come up with measures to revive the economy.
The Medium Term Strategic Framework, announced by Finance Minister Nhlanhla Nene in his 2014 Medium Term budget, is one such measure. The framework prioritises initiatives that will boost investment including major projects in rail, energy and ports.
“Furthermore, focus in the medium term will be on accelerating the structural changes that are already underway and whose impact will support economic growth,’ said Treasury in a statement.
Moody’s also revised the credit outlook for South Africa from negative to stable, retaining South Africa’s rating in investment grade. The agency said several factors informed its decision to assign the country a stable outlook and these include:
- South Africa’s position as the most developed country in Africa, offering by far the deepest capital market
- The country possesses one of the most sophisticated financial systems among emerging countries
- It has an economy that has a diversified productive base, with substantial value-added from domestic sources
- South Africa has highly advanced infrastructure compared with most emerging markets
- Its institutions, especially the judiciary, are stronger than many of its peers
- Has recorded important milestones in the past 20 years which include the early establishment of macroeconomic policy credibility, expansion of services, housing and utilities and the emergence of the black middle class.
In addition to the above, Moody’s said South Africa is committed to reigning in government debt growth over the medium term. The support that the National Development Plan (NDP) has received from the political sphere, introduction of tighter monetary policy and fiscal restraint will help stabilize the debt burden over the medium term, according to Moody’s.
“The rating agency’s decision to assign a stable outlook to the current ratings affirms government’s commitment to fiscal discipline, which was reinforced by the recently published Medium Term Budget Policy Statement,’ said Treasury, adding that South Africa is committed to narrowing the budget deficit, stabilising debt and rebuilding the fiscal space that enabled the country to extricate itself out of the debilitating 2008/9 global economic crisis.
Adding Treasury said South Africa will continue to implement “prudent’ macroeconomic policies which have been the hallmark of government since 1994.
“Government will continue to make tough decisions that are necessary to address out challenges so we can build on the gains we have made over the past 20 years to improve the lives of our people,’ said Treasury.