ANC: we failed to grasp full cost of downgrades
• Government may need to rein in spending • Recession is a possibility, governing party concedes
While the ANC acknowledges that it does not yet know the full economic effect of SA’s credit ratings downgrades to junk status, the party has conceded that a recession was a possibility.
It said this might mean the government would need to rein in spending to work itself back to investment-grade status.
“We don’t have the full understanding of what the implications are at this stage‚” Enoch Godongwana, chairman of the ANC’s committee on economic transformation, said on Sunday. SA needed to “pull together” to overcome its economic problems, he said.
Acknowledging that party members lacked a common understanding of the fiscal implications of a sovereign credit downgrade on government programmes, he said the party would begin a prolonged period of introspection.
Briefing the media at the party’s Johannesburg headquarters, Godongwana reiterated that the party’s main economic priority remained transformation.
Ratings agencies Fitch and S&P Global Ratings last week downgraded SA’s sovereign credit rating to subinvestment grade, or junk status.
Also last week, Moody’s Investors Service, the only ratings agency that still has an investment-grade rating on the country, placed SA on review for a downgrade. It would make its pronouncement within 90 days, said the agency.
The ratings actions followed a cabinet reshuffle by President Jacob Zuma, which included the dismissal of finance minister Pravin Gordhan and his deputy, Mcebisi Jonas. In their portfolios, Zuma appointed Malusi Gigaba and Sfiso Buthelezi, respectively, breaking with the tradition of appointing Treasury insiders to the ministry.
A ratings downgrade makes it more expensive to raise funds as creditworthiness deteriorates. This could slow economic growth and raise inflation.
The cost of financing the deficit had become more difficult, said Econometrix chief economist Azar Jammine.
“Radical economic transformation will require more interest than [already] paid and more cuts in spending.”
Godongwana said a deterioration in SA’s credit rating would have a major negative effect on the country’s ability to raise debt to fund its development programmes. “We will need to sharpen our pencils and revise our expenditure patterns as government,” he said.
Rural Development and Land Reform Minister Gugile Nkwinti, who also attended the briefing, said the ratings downgrade had “serious negative implications, particularly for the poor”.
“The question is how do we get ourselves out of junk status. This is not something we are in control of. We are part of the world economy.”
The essential message conveyed by the ratings downgrade, according to Godongwana, is that the country needs to deal with structural changes to its economy, including sluggish growth. “The other message from these agencies is that the most recent reshuffle has sent a signal of political instability and policy uncertainty.”
The ANC economic transformation committee was briefing
the media ahead of the policy conference scheduled for
June, which will review ANC policies, including “a need for renewed focus on growthenhancing policies required to reverse the country’s economic fortunes”.
There was also a need “to stabilise the outlook for governance in our state institutions‚ ensure that state-owned entities are financially sustainable and address policy uncertainties”, Godongwana said.