Ratings downgrades a vote of no confidence in Ramaphosa

The news of the further ratings downgrades by Moody’s and Fitch is a vote of no confidence in President Cyril Ramaphosa’s management of South Africa’s economic reform agenda.

The rating agencies’ decision is a clear message to the government saying, essentially, that “reform isn’t happening, and we don’t believe it will – or not at the speed required to make a difference”.

The downgrades follow the disappointing Medium-Term Budget Policy Statement (MTBPS) tabled by Finance Minister, Tito Mboweni, last month. The MTBPS reversed the government’s position on South African Airway (SAA), choosing to bail it out again to the tune of R10.5 billion. And the MTBPS represented a relaxation in the government’s commitment to get debt under control by 2023. These two decisions undermine credibility and confidence in the government’s promised reform programme, leading to investors and ratings agencies questioning the sustainability of government finances.

These downgrades will be a blow to an economy that is already reeling due to years of bad policy, looting, and the devastation of the lockdown. The consequences will be higher costs of borrowing, more spent on servicing debt, and therefore less available for basic services.