S.A’s Treasury, CEO Initiative, BASA respond to Fitch downgrade

PUBLISHED: Fri, 07 Apr 2017 17:26:59 GMT

Treasury statement 

Fitch Ratings has downgraded government’s long-term foreign and local currency debt to ‘BB+’ from ‘BBB-‘ with a stable outlook, a non-investment grade rating.

The announcement by Fitch is noted by government and while it is a setback, government remains committed to making sure that its work with business, labour and the civil society continues in order to improve the business confidence and implement structural reforms to accelerate inclusive economic growth.

This downgrade reflects Fitch’s view that recent political events, including a major cabinet reshuffle, will weaken standards of governance and public finances. In the agency’s view, the cabinet reshuffle is likely to result in a change in the direction of economic policy, to undermine progress in state-owned companies’ governance, raising the risk that the contingent liabilities associated with these entities are realised and increase the prospect of a substantial increased issuance of guarantees in respect of a nuclear build programme.

The government would like to reaffirm its full commitment to the policy stance contained in the President State of the Nation Address and the Budget 2017. Government remains committed to:
 The fiscal policy trajectory outlined in Budget 2017.
 Implementing reforms to improve governance in state-owned companies.
 Maintaining the expenditure ceiling and ensuring the stabilization of government debt.
 Ensuring that Nuclear procurement will be transparent and implemented at a scale and pace that the country can afford.
 Fast-tracking the implementation of structural reforms aimed at boosting economic growth as contained in the 9-point plan.
To this end, and as acknowledged by Fitch economic growth is expected to be higher this year than in 2016 then rising further over the medium-term.

We urge all South Africans to remain positive and continue to work hard in turning this economy around. This country has tremendous potential, by working together we can make South Africa an increasingly attractive investment destination.

CEO Initiative’s statement

The well-being of all South Africans has been dealt another blow following the downgrade of South Africa’s long-term foreign currency sovereign credit rating to sub-investment grade by a second ratings agency, Fitch.

In addition, Fitch also downgraded their ratings of the long-term rand-denominated sovereign credit rating to sub-investment grade. This is particularly concerning given that approximately 90% of all government debt is rand-denominated.

Fitch attributed these downgrades to their “view that the cabinet reshuffle which involved the replacement of the finance minister, Pravin Gordhan and the deputy finance minister, Mcebisi Jonas, is likely to result in a change in direction in economic policy and is likely to undermine, if not reverse, progress on SOE governance, raising the risk that SOE debt could migrate onto government’s balance sheet”. These are essentially the same reasons that Standard and Poor’s gave for their recent downgrade.


Unfortunately ordinary South Africans will pay the price of these actions for many months to come.

The CEO Initiative remains committed to working with the government and labour in creating an environment that is conducive to sustainable and inclusive growth for the benefit of all who live in South Africa.

In order for this to happen, it is now more crucial than ever that we maintain continuity with our fiscal plan and apply strict discipline in managing the country’s finances. Above all else, our country should not be drawn into borrowing even more money that would have to be repaid at higher rates of interest following these downgrades.


The downgrading by Fitch, of both the foreign and local currencies of SA to sub-investment grade is devastating, though not unexpected.

The fact that Fitch has directly attributed its downgrade to the actions of the President demonstrates in no uncertain terms the broad assertion that the Cabinet reshuffle, although the prerogative of the President, was not in the national interest.


A presidential prerogative cannot be exercised in a reckless manner, with insufficient regard for the consequences of such prerogative. SA is now experiencing the dire consequences of the actions that started with the precipitous calling back of the previous minister from a critical roadshow. One has to ask if we would, as a nation, be in this position if we were not forced to abandon interactions with investors and rating agencies.

It is critical that government and the ruling party take heed as South Africa continues to slide backwards because of poor leadership and an inability to act in the national interest over what seems to be the interests of the ruling ANC itself.


This additional downgrade is of greater concern as it includes a downgrade of the Rand, after the local-currency rating was also lowered one level to junk. This will have an immediate and severe impact on the currency, will seriously impact on our ability to attract foreign investment and will likely trigger a marked steep rise in prices of goods and services across the board. South Africa is poorer today.

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