Major SA banks ring alarm bells
Sovereign credit-rating downgrade may do more harm
CHIEF executives at SA’s major banks, who earlier criticised the removal of finance minister Pravin Gordhan and his deputy, Mcebisi Jonas, said a sovereign creditrating downgrade would have serious negative implications for economic growth and job creation.
S&P Global Ratings cut SA’s foreign-currency credit rating to junk status on Monday night, saying “executive changes” by President Jacob Zuma risked fiscal and growth outcomes.
“The latest round of changes to key portfolios in government without adequate explanation do not tell a story of stability and will not enhance confidence,” Nedbank chief executive, Mike Brown warned earlier.
The reshuffle was disappointing, especially in the context of political and policy instability and low economic growth, Brown said.
“Ratings agencies will be concerned, as we are, about the slow growth in the economy and the fact that the government is spending more money than it collects in taxes, leading to an increase in government borrowings,” he said.
The government needed to borrow R730-billion over the next three years to service debt and pay for public infrastructure, such as roads and schools, the Treasury said.
The downgrade will increase government borrowing costs, as bond investors demand a higher return in exchange for higher perceived risk.
Removing Gordhan had significantly increased the risk of a sovereign credit-rating downgrade and reduced institutional knowledge, said Johan Burger, chief executive of FirstRand.
“This is particularly disappointing, given the efforts of the finance ministry, together with labour and business, to avert a negative outcome,” Burger said.
A work stream focused on addressing issues related to SA’s credit rating was established in 2016 in terms of the CEO Initiative, a joint venture between business, the government and labour to drive confidence and growth in the economy.
The country managed to stave off a downgrade throughout 2016.
“If investors lose faith and trust in our economy, all citizens pay the price for this, in the form of higher inflation, decreased buying power as well as decimated savings, pensions and investments,” the CEO Initiative said.
“A lack of investment also means that growth and muchneeded job creation will be stifled,” it said.
“Although we are dismayed by the dismissal [of Gordhan and Jonas]… [what] really matters is that ministers are committed to fulfil their mandate within the Constitution,” said Standard Bank joint CEOs Sim Tshabalala and Ben Kruger.
SA’s sound fiscal and monetary policies were a “national competitive advantage”, with the country ranking third in the world for the transparency of its budget process, Tshabalala said.
“It is our earnest hope that whatever our leaders decide to do, they will maintain that tradition,” Tshabalala said. — TMG