Treasury notes S&P downgrade

Sunday, October 14, 2012

Pretoria - National Treasury says it has noted Standard and Poor's (S&P) decision to downgrade South Africa's long term foreign currency credit rating to BBB from BBB+ and the long term local currency credit rating to A- from A.

"S&P has maintained the negative credit outlook on the rating," said National Treasury in a statement.

S&P gave the following reasons for the downgrade:
* The recent strikes in the mining sector were likely to feature in political debates in the run up to the 2014 general elections, thereby increasing policy uncertainty;
* Underlying social tensions that may result in amplified spending pressures, thereby undermining the fiscal consolidation path; and
* Weaker business and investment climate, which may weigh on South Africa's economic growth prospects.
"S&P said the negative outlook reflects the medium term political, economic and fiscal ramifications of South Africa's social tensions, which could deteriorate further.

"Moreover, the difficulty of addressing the socio-economic imbalances could be exacerbated by increasing external pressure arising from slowing global growth and the risk aversion of investors," said Treasury.

However, it said that while there were risks to growth, its fiscal framework continued to be guided by the three principles that were outlined in the 2012 Budget in February, which are counter cyclicality, debt sustainability and intergenerational equity.

On Wednesday Cabinet approved the fiscal framework for the next three years, the details of which will be announced by the Minister of Finance on 25 October 2012.

Treasury believed its fiscal plan was realistic and achievable.

"There is no historical evidence to support S&P's assertion that '...underlying social tensions [will] increase government spending pressure...'.

"Indeed, our young democracy has seen several elections within the ruling party and government. None of these have impacted policy and budgeting in the manner that S&P suggests.

"Government will continue to invest in infrastructure, with the view of enhancing the productive capacity of our economy and the competitiveness of our industries. This will be done in a manner consistent with fiscal sustainability," it said.

On the industrial action, Treasury stressed that government was working with all parties to bring about an immediate end to the wildcat strikes.
"All parties understand that our country cannot afford these kinds of disruptions to economic activity in these difficult times," noted Treasury.