Government's response to the rating actions of
Government notes the following credit rating decisions made by the 'big three' rating agencies (S&P, Fitch and Moody's):
S&P has affirmed
According to S&P, lockdowns associated with combating the Covid-19 pandemic plunged
Fitch has downgraded
According to Fitch, both the downgrade and negative outlook reflect high and rising government debt exacerbated by the economic shock triggered by the Covid-19 pandemic. Further, the very low trend growth and exceptionally high inequality will continue to complicate fiscal consolidation efforts.
Moody's has downgraded
According to Moody's, the downgrade reflects the impact of the pandemic shock, both directly on the debt burden and indirectly by intensifying the country's economic challenges and the social obstacles to reforms. Furthermore,
Government's policy priorities remain economic recovery and fiscal consolidation, as outlined in President
"The decision by Fitch and Moody's to downgrade the country further is a painful one. The downgrade will not only have immediate implications for our borrowing costs, it will also constrain our fiscal framework. There is, therefore, an urgent need for government and its social partners to work together to ensure that we keep the sanctity of the fiscal framework and implement much-needed structural economic reforms to avoid further harm to our sovereign rating." Minister of Finance, Mr
Rating agencies have indicated that
Government implores on all members of society to adhere to all the necessary health and safety protocols to avoid a second wave of COVID-19 infections which would have significant adverse implications for the economy and plans to boost employment.
Sub-investment grade implications - what does it mean for the average South African
The Covid-19 pandemic shock hit
Financial strain to the government caused by the pandemic, weak economic growth, high wage bill as well as continuous support to the financially weak State-owned Companies have weakened public finances and led to government accumulating debt. Currently, government has accumulated debt stock of nearly R4 trillion and spends approximately R226 billion on interest costs.
If the cost of borrowing money for government increases, it means that government will have to either cut back on social spending or tax more the few people that are employed, which is bad for the country.
Further downgrades will extend the impact of lockdown restrictions. These restrictions led to many workers being laid off from work since companies were temporarily closing doors and cutting back on operational costs. Without any disposable income and increasing costs of goods, it will be difficult to maintain the standard of living. 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.
Rating downgrades associated with Covid-19 have also resulted in many small businesses closing down and laying off a number of workers. Operational costs together with borrowing costs are expected to increase, supporting the motive to pass through the costs to consumers or further laying off workers.
The recent rating outcomes mean that
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