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‘Painful’ downgrades will raise South Africa’s borrowing costs – Mboweni

Finance ministry says economic reforms urgently needed.
Finance Minister Tito Mboweni. Image: Dwayne Senior/Bloomberg

South Africa’s finance ministry said on Saturday credit ratings downgrades by Moody’s and Fitch would increase the country’s borrowing costs and constrain its fiscal options.

“The decision by Fitch and Moody’s … is a painful one,” Tito Mboweni, minister of finance, said in a statement.

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Read: SA descends deeper into junk after two downgrades

There is an urgent need for government to implement structural economic reforms to avoid further harm to the country’s sovereign rating, he said.

Credit rating agencies Fitch and Moody’s lowered South Africa’s sovereign ratings deeper into junk territory late on Friday on rising debt and a likely further weakening in its fiscal position. S&P Global affirmed its rating.

With the Covid-19 pandemic worsening, South Africa’s tax revenue is falling as the economy contracts, while spending to contain the spread of the virus and cushion its impact on the poor has increased.

At last month’s mid-term budget, the National Treasury forecast South Africa would record a budget deficit of over 15% of GDP in the fiscal year ending March 2021, the highest in post-apartheid history.

Africa’s most industrialised nation currently has a debt of nearly R4 trillion, or 63.3% of the GDP. Its debt-to-GDP ratio is expected to swell to over 90% in three years, the worst such increase in the world.

With the ratings downgrade, the cost of borrowing and servicing the debt will increase and the government will either have to cut back on social spending or tax more, the National Treasury said, at a time when almost a third of the population is unemployed.

“Continuous rating downgrades will translate to unaffordable debt costs, deteriorating asset values (such as retirement, other savings and property) and reduction in disposable income for many,” it said, referring to the impact on South Africans.

Market reaction to the downgrades are likely to be muted, said Razia Khan, chief economist for Africa and Middle East at Standard Chartered Bank.

“Reform momentum (of government) is looking more positive near term,” she said, but cautioned it is fraught with challenges.

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If you don’t have the money then nothing is cheap.

Cut the public sector wages bill or else.

They will not do this because this is their voting base. They have entered into a devil’s contract from which they cannot extract themselves. Look at the contortions they are now going through around Eskom, SAA and the SABC. None of these entities can survive on their own steam. All are very likely overstaffed with people who are overpaid (not counting all the other perks than come with government jobs). But if they start firing them the unions throw a fit and inevitably the government backs off. This circus has been going on for a long time, with no end in sight.

For how many years are the government and economics saying that economic reforms are urgently needed. They will not happen if government does nothing.

Government does the opposite of what it says. It says expenditure has to be reined in, but then the parasitic public alleged servants get obscene increases, far above inflation.

The minister and a lot of other people talk of urgently needed reforms, but can somebody please tell us what is meant by that. What must change, what must be put in place, what must be scrapped? Are we talking of the same thing or does structural reforms mean different things to different people? Maybe one of MW’s journalists can tell us what are the structural reforms that are needed.

Short answer. For the ANC to implement the necessary economic reforms that provide the only solution to save the country from a collapse in economic activity and an implosion of the financial system, they have to adopt the economic policies of the DA or the FF+.

The ANC will have to metamorphose into the FF+ if they want to build the economy, create jobs, generate taxes, afford the social grant and prevent mass starvation.

Now, if you want to determine the odds for a turnaround to an improved financial future, you simply have to answer one simple question.

Will the ANC be able to keep their voters if they become the FF+?

@ auretha: Firstly I suspect that most of those in government do not know what the ‘reforms’ are. They talk because they are expected to spew out whatever rhetoric government puts out to voters who they know are not able to question them. Secondly those that might know what the required ‘reforms’ are, know very well that those reforms will never materialise because it is simply against the ideology of the communist government (parading as a socialist democratic one – for the benefit of ratings agencies and, they hope, investors). They also know if they stipulate what those reforms are, they will be continually questioned as to why they have not been implemented the next time they are questioned. Politicians follow the standard ‘mushroom rule’ with the citizens, “feed them on BS (manure) and keep them in the dark”. Mushrooms grow very well using that method – and so do voters I guess.

Rabid, oppressive communism is the anc and eff’s goal…..period!

And that’s their problem and why our economy is doomed and tgeir “our people” will eventually starve in abject poverty and destitution.

Next comes a civil war and the inevitable military coup as the people drag their care less leaders our of their plush colonial, wood panelled offices and luxury wmc limos and the streets decend into murderous mayhem.

Given africa’s track record it’s all highly probable…but the arrogant anc and eff have clearly taken this path if destruction.

What did you expect ? You are merely reaping what you sowed. There is no reason to be surprised.

“Reform momentum (of government) is looking more positive near term,” she said, but cautioned it is fraught with challenges.

One ‘challenge’ mainly madam – nothing will be reformed in a positive manner. Mainly the freeze on government payroll costs and that bright star called EWC that is generally ignored in the hope that it will not happen – like state capture. State Capture is alive and thriving and EWC is hot on its heels.

Funnier than Trevor Noah. No one seems to want to say it but the ANC regime doesn’t care about the cost of borrowing or how it will be paid back; they just want the money; as soon as possible. In their arrogance I doubt they will even say please and thank you.

Well lets just keep bailing SAA, ESKOM and the likes out. Oh! And what about letting the unions run the show! Oh!! And what about giving the communist’s a go??

Lets stick with a policy of BEE that has just become a vehicle for corruption.

It just goes on and on.

The fact that they are surprised just tells me they need to grow up!! They are not just plain dumb are they?

#VoetsekANC!!!!

We have got the National Credit Act that protects citizens from themselves by limiting their access to credit. This act prevents over-indebtedness to protect the financial- and banking system against a systemic collapse.

This citizen then used the powers bestowed upon him by the democratic system to circumvent the NCA to overindebted himself via his choice of government. The average voter took on a whole heap of unaffordable credit to fund social grants, members of the Tripartite Alliance, and the salaries of government employees. The average voter circumvented the restraints of the NCA by voting for populist and redistributive ANC policies. This voter basically bankrupted himself through the ballot. He effectively borrowed from his grandchildren to fund the exorbitant salaries of Cosatu members. This voter pawned his own future to buy votes for the ANC. The voter indebted himself to fund Ace Magashule who is heading for jail. The average voter is effectively sending the future of his grandchildren to jail with Magashule.

The credit rating says that the average voter is 2 notches below junk.

Don’t forget to include the multitude of ‘Royal Houses’ of the multiple tribes for which all citizens are obliged to pay for. A conglomerate made up of the leaders of the Republic (Dictatorship), and the Kings and assorted ‘Traditional’ leaders, as well all the hangers-on in each of these richly rewarded structures. Has anyone worked out how many Presidents, Kings, Ministers, Mayors, Cabinet & Council members the average Mr Taxpayer in SA actually pays for, directly and indirectly and what the total cost is? Now that would be an interesting research subject for a political science student (subject of course to what political ambitions they have)

After the theft by the ANC cadres, pain for the poor.

Aag shame — grab a band aid !!!

Not to worry …. we’ll soon have a world class airline, SAA.02. It will provide free flights for all government ministers and their families and girlfriends.
As for “structural reforms” ….. I don’t think the rating agencies buy that fable anymore.
And as for the ANC ….. carry on looting but keep repeating the slogan: “we are fighting corruption on all fronts” ….. maybe the poor and unemployables will sort of believe it one more time.

You heard it here first;

“With the Covid-19 pandemic worsening, South Africa’s tax revenue is falling as the economy contracts, while spending to contain the spread of the virus and cushion its impact on the poor has increased”

Who knew that spending is increasung as lockdown levels decrease, clearly the looting is not over!

Urgent reforms are needed, says Tito, while Gordhan and his SAA business rescue practitioners do summersaults to get their greedy claws in the vault first!
Gordhan will be blaming the ratings agencies and call them names along with people like Duarte, Magashule and Mantashe…

Ratings agency already told SA government that the wage bill is too high; amongst other factors.

Agencies will compare the budget to actual wage bill to see whether governments sticks to budget .

I’ve made reforms already. I only feel sorry for my fellow SAn’s that didn’t vote for your party either.

Maybe the anc should recognise the pain inflicted on our economy by their mindless marxist ideology and their hatred of free market enterprise….the only sponsors of their political madness?

Being stupid and stubborn at the same time costs.

#VoetsekANC..

Note to the reporter; kindly write a report which makes reference to statistics about phrases such as: …..reforms are urgently needed.. This kind of reporting is getting stale and the minister is blowing smoke up …. and taking the SAs for fools

A 108-year old organization that is incapable of learning is incapable of taking the corrective action needed to prevent a fiscal disaster. The increased interest cost for not taking the relevant action is like throwing money away. The ANC expects the tax-payer to cough up more. No f$%ckin’way. It’s time for a tax-payer revolt to expedite the demise of this shameful organization.

The funny thing is ratings downgrades have no effect on borrowing costs. This is easily verified, check the bond yields, they do not move on credit ratings news. Why? Because investors are smarter than credit rating agencies on the whole. Therefore they price the risk in daily. By the time a credit ratings agency acts, the risks are fully priced for months, sometimes years, by the market. I am just astounded that Tito Mboweni does not not know this, or is not prepared to state the truth. If you do not believe me, look at the borrowing cost (yield curve) of Greece, whose ratings are close to ours if not identical.

End of comments.

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