Zuma calls for measures to boost economy

President Jacob Zuma called for concrete measures to boost growth after S&P Global Ratings downgraded the local currency debt to sub-investment grade, while foreign currency debt was pushed deeper into “junk” territory.

The rand recovered yesterday from steep falls suffered late on Friday after the downgrade. “The market is finding some relief in the fact that Moody’s has chosen to give us basically until February before they change our rating, if they do change our rating,” explained Shaun Murison at IG Markets.

A cut to “junk” on the local currency debt by both S&P and Moody’s could have seen SA debt lose its place in Citi’s World Government Bond Index (WGBI), the biggest of the global benchmarks and tracked by about $2-3 trillion of funds.

Zuma directed finance minister Malusi Gigaba yesterday to finalise proposals for expenditure cuts amounting to R25 billion and revenue boosting measures totalling R15 billion – including through taxes.

A proposal by a presidential commission to introduce free higher education should also be implemented in a “fiscally sustainable manner”, the statement from Zuma’s office said.

Gigaba in October unveiled a gloomy outlook for the economy as he flagged weaker growth expectations, wider budget deficit estimates and rising government debt.

Both S&P and Moody’s cited deterioration in SA’s economic growth prospects and public finances.

Moody’s said the review would allow it to assess SA authorities’ willingness and ability to respond to the rising pressures through growth-supportive fiscal adjustments that raise revenues and contain expenditures.

S&P’s decision will see SA excluded from the Barclays Global Aggregate index, whose inclusion criteria requires investment grade rating on its local currency debt from any two ratings agencies.

Fitch already rates SA debt as “junk” and affirmed the rating on Thursday.

If nothing changes, SA will be downgraded to “junk” by all ratings agencies and the WGBI dream will be no more, at least for many a year, said Standard Bank’s Warrick Butler. “What this means, in terms of the currency, will be increased volatility.”