Finance Minister Pravin Gordhan says SA must avoid a rating downgrade to junk status, vowing the government would do what was necessary to prevent such a descent.
“Government is very alive to our environment both global and local so we will make the right decisions in the interests of the country,” he says in an interview on Monday.
The rating agencies’ matrices were transparent and SA needed to improve its numbers “on a collective basis and act with the appropriate sense of urgency and cohesion,” he says.
Gordhan says an action plan is being developed.
Consensus was needed among business, the government and labour leaders on collective action to avert a downgrade and claw back lost credibility.
Gordhan emphasised that the government would stay on the path of fiscal consolidation.
SA is on the cusp of a downgrade to “junk” status by at least one of the major credit rating agencies after Fitch and Moody’s downgraded their ratings last month and Standard & Poor’s put SA on negative outlook.
All three are concerned about SA’s very weak economic growth rate and the extent to which this might hamper the Treasury’s ability to deliver on its plans to stabilise the level of government debt, which has doubled in the six years since the global financial crisis.
The prospect of a downgrade and the firing of Nhlanhla Nene as finance minister have made for a torrid time for the rand and bond yields, which this year have been hit too by negative sentiment against emerging markets and commodity exporters more generally.
The government has gone on a charm offensive, with Minister in the Presidency Jeff Radebe saying last week that the Cabinet had endorsed measures to restore a sustainable fiscal path, taking account of the weakened economic outlook.
It is not clear whether the rating agencies, which had downgraded SA even before last month’s finance minister debacle, will be convinced.
Ratings matter for the government and the corporate sector because they affected the cost of borrowing and had ripple effects across the economy, Gordhan says. “Government borrows about R11bn a week and it does matter if you pay 8% or 10% on those borrowings.
“Like any consumer, you would want to pay the lowest possible interest rate and it therefore behoves us to find a way of placing SA on a fiscal and credibility footing which will ensure that we claw back some of the ground we have lost,” he says.
Gordhan is due to present the budget next month.
The Treasury was still pondering the extent of the adjustments it would have to make in light of changed economic circumstances, he says.
“The public needs to be aware that these are difficult times not only for ourselves, but among emerging markets globally, and that needs to be taken into account,” he says.
“We have now reached the point where borrowing more is not the easy answer to our difficulties,” Gordhan says.
Some economists say he will have to do better than October’s targets if he wants to rebuild credibility and they query whether he has sufficient support from his Cabinet colleagues to curb costs, given the pressures for additional spending on student fees and drought relief.
But Gordhan countered: “For almost 20 years now, SA has had a very consistent record in matching action to words and intent on the fiscal side.”
He declined to provide any detail on why he halted the far-reaching operational restructuring that South African Revenue Services commissioner Tom Moyane started late last year.
Gordhan says on Monday was only his 13th day in the job and he was reviewing developments at all the institutions critical to SA’s fiscal health to see what was in the best interest of the country.
“We need a well-run and effective tax administration, which has public credibility based on the values of honesty, integrity and fairness,” he says.
By Hilary Joffe for www.bdlive.co.za