National Treasury and the Banking Association of SA have reacted very differently to the Fitch Ratings downgrade of SA's sovereign credit rating to junk - the second in a week.
Treasury said it was a "setback" but urged South Africans to remain positive in their comments on Fitch's move - which follows S&P Global's downgrade.
But the Banking Association said it was "devastating".
Treasury, now headed by Malusi Gigaba who replaced Pravin Gordhan in President Jacob Zuma's late-night Cabinet reshuffle last week, issued a series of reassurances and commitments to fiscal discipline and transparency, including on the nuclear deal.
This will have an immediate and severe impact on the currency‚ will seriously impact on our ability to attract foreign investment and will likely trigger a marked steep rise in prices of goods and services across the board.
— Banking Association of SA
But, said the Banking Association, "The fact that Fitch has directly attributed its downgrade to the actions of the president demonstrates in no uncertain terms the broad assertion that the Cabinet reshuffle‚ although the prerogative of the president‚ was not in the national interest."
The Fitch downgrade was more concerning, it said, "as it includes a downgrade of the rand‚ after the local-currency rating was also lowered one level to junk.
"This will have an immediate and severe impact on the currency‚ will seriously impact on our ability to attract foreign investment and will likely trigger a marked steep rise in prices of goods and services across the board.
"SA is poorer today."
The rand, however, was relatively resilient on Friday afternoon, bouncing back from an initial sell-off to trade little changed at about R13.80/$ late in the afternoon.
Treasury acknowledged Fitch's reasons, saying: "In the agency’s view‚ the Cabinet reshuffle is likely to result in a change in the direction of economic policy‚ to undermine progress in state-owned companies’ governance‚ raising the risk that the contingent liabilities associated with these entities are realised, and increase the prospect of a substantial increased issuance of guarantees in respect of a nuclear build programme.
"The government would like to reaffirm its full commitment to the policy stance contained in the President State of the Nation Address and the Budget 2017."
Treasury said Government remains committed to:
- The fiscal policy trajectory outlined in Budget 2017.
- Implementing reforms to improve governance in state-owned companies.
- Maintaining the expenditure ceiling and ensuring the stabilisation of government debt.
- Ensuring nuclear procurement will be transparent and implemented at a scale and pace that the country can afford.
- Fast-tracking the implementation of structural reforms aimed at boosting economic growth as contained in the nine-point plan.
"A presidential prerogative cannot be exercised in a reckless manner‚ with insufficient regard for the consequences of such prerogative‚" Coovadia said.
"SA is now experiencing the dire consequences of the actions that started with the precipitous calling back of the previous minister from a critical roadshow. One has to ask if we would‚ as a nation‚ be in this position if we were not forced to abandon interactions with investors and rating agencies.
"It is critical that government and the ruling party take heed as SA continues to slide backwards because of poor leadership and an inability to act in the national interest over what seems to be the interests of the ruling ANC itself.
TMG Digital
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