The decision by Moody’s to downgrade our sovereign credit rating to “Baa3”, with a “negative outlook”, is more bad news, in a string of bad news, and is a clear vote of no confidence in finance minister Malusi Gigaba and President Jacob Zuma.
The decision by Moody’s highlights the fact that “political developments” have had a negative effect on “institutional strength” which “casts doubt over the strength of and sustainability of the recovery in growth and stabilisation of the debt-to-GDP ratio over the near term”.
The ratings action means our long-term local currency debt, which forms 88.2% of our R2.2 trillion net debt, now hovers dangerously at one notch above “junk status”, with a negative outlook, following ratings actions by the two most important ratings agencies, Moody’s and Standard & Poor’s.
We will not sit back and do nothing when the economy has slipped into recession, and when a staggering 9.3 million people do not have jobs, or have given up looking for jobs, in South Africa.
And that is why we have written to the Speaker of the National Assembly, Baleka Mbete, calling for a “snap debate” on measures to deal with the recession, ratings downgrades and mass unemployment in South Africa.
Media reports today that the nuclear deal is going full-steam ahead is extremely concerning and will essentially guarantee that South Africa will be downgraded by further ratings agencies, and will make recovering from this status even more difficult.
According to a confidential document, in June Eskom will issue a formal request for proposals for the R1 trillion contract for the nuclear build programme. The winning bidder will be confirmed in March next year and the contract signed and sealed between December 2018 and March 2019.
Fitch stated in no uncertain terms that a key driver behind the decision was that “Eskom, has already issued a request for information for nuclear suppliers and is expected to issue a request for proposals for nuclear power stations later this year. The treasury under its previous leadership had said that Eskom could not absorb the nuclear programme with its current approved guarantees, so the treasury will likely have to substantially increase guarantees to Eskom”.
The DA will write to the Chairperson of the Portfolio Committee on Public Enterprises, Ms Dipuo Letsatsi-Dub, to request an urgent meeting of the committee in order to ensure that Parliament, as a key oversight body, will fully interrogate all aspects related to the nuclear deal.
The undeniable fact is that South Africa cannot afford, and does not need, the nuclear deal. Indeed, international ratings agencies agree and this deal has been repeatedly cited as a cause for great concern and a key factor in downgrades not only for Eskom, but the country as a whole.
Last week, Standard & Poor’s Global and Moody’s downgraded the long-term corporate credit rating on Eskom from B+ to BB-.
These downgrades have already and will continue to have a devastating effect on our economy. Jobs will be lost and the cost of living will increase, which will hurt the poor.
The ANC-led government is ignoring these facts and the massively negative effect on ordinary South Africans only reaffirms that they no longer put the best interest of our country or its people first.
The new Minister of Finance, Malusi Gigaba’s, attempts to restore confidence and engage ratings agencies failed to convince Fitch Ratings (“Fitch”) not to downgrade South Africa.
The fact is that the decision by Fitch to downgrade our long-term foreign currency debt and long-term local currency debt to “BB+”, or “junk status”, with a “stable outlook”, is a vote of no confidence in the minister’s ability to hold the fiscal line and stabilise debt.
This should come as no surprise given that the minister is trying to convince the ratings agencies that he can hold the fiscal line and implement “radical economic transformation”, which is simply not credible.
It’s not good enough for the minister to simply concede the ratings downgrade was a “setback”. The minister needs to roll up his sleeves and get into the fight to avoid further ratings downgrades.
The minister’s number one priority should be to avoid the nightmare scenario where massive forced selling of our debt triggers an economic meltdown that will spare nobody, rich or poor.
This could happen if Standard & Poors and Moody’s downgrade our long-term local currency debt, which makes up about 90% of our debt, to “junk status”.
However, the problem is that the ratings agencies do not trust the minister: they regarded him as a presidential minion, ready to carry out any instruction, no matter how damaging to the economy.
To re-establish trust, the minister will have to show, rather than tell, ratings agencies that he is serious about avoiding further downgrades, by delivering “quick wins”, starting with saying “no” to bailouts for “zombie” state-owned entities, like the SABC.