By The South African Treasury 



Government notes the <a href="https://www.cnbcafrica.com/insights/sa-downgrade/2020/03/27/moodys-downgrades-sa-to-junk/">decision by Moody’s </a>to downgrade South Africa’s long term foreign and local currency debt ratings to ‘Ba1’ from ‘Baa3’ and maintain the negative outlook. South Africa’s credit ratings by Moody’s are now one notch below investment grade. 



According to Moody’s, the following are key drivers behind the downgrade: 



<ul class="wp-block-list"><li>Structurally very weak growth and constrained capacity to stimulate the economy. </li><li>Inexorable rise in government debt over the medium term. </li></ul>



The negative outlook reflects the risk that economic growth will prove even weaker and the debt burden will rise even faster and further than currently expected, weakening debt affordability and potentially, access to funding. 



The decision by Moody’s could not have come at a worse time. South Africa, like many other countries, is seized with containing the outbreak of the <a href="https://www.cnbcafrica.com/covid-19/">coronavirus</a> (COVID-19). The impact of COVID-19 is felt across various sectors of the economy including the financial markets which experienced a significant sell-off in equities, bonds and exchange rates as investors retreated to safe haven securities amid the uncertainty. 



The sovereign downgrade will further add to the prevailing financial market stress. These two events will truly test South African financial markets. South Africa’s deep, stable financial sector and robust macroeconomic policy framework have always been flagged as a credit strength, including the South African Reserve Bank’s demonstration of a good track record in implementing credible and effective monetary policy and preserving financial stability. 



The sovereign downgrade will further see South Africa being excluded from the FTSE World Government Bond Index (WGBI) and the government bond market will experience further capital outflows as fund managers with investment grade mandates will be forced to sell South African government bonds. Non-residents currently hold approximately 37% (R800 billion) of the total domestic government bonds and the number is expected to substantially decline with the combined impact of COVID-19 and the downgrade. The interest rate for government, households and the broader economy is also expected to increase as a result. While some market participants argue that the impact of a sovereign downgrade has already been priced in, it is difficult to stipulate with certainty the extent. 



“Therefore, to say we are not concerned and trembling in our boots about what might be in the coming weeks and months is an understatement,” Minister of Finance, Mr Tito Mboweni, said. 



In the immediate period, South Africans under the leadership of his excellency Mr Cyril Ramaphosa have rallied together to fight COVID-19 to ensure South Africa emerges triumphant from the pandemic. The President announced a number of measures to offset the COVID-19 impact on the economy and its people including a 21-day lockdown which commenced on March 27 to combat the spread of the virus. In relation to financial markets functioning, the South African Reserve Bank has also announced a set of interventions to stabilize financial markets and provide much-needed stability. 



In addition, over the short to medium term, government remains committed to implementing structural economic reforms to address the weak economic growth, constrained fiscus and the ailing state-owned companies. Government is providing medium-term support to Eskom to secure energy supply and to honour the state’s contractual obligations. National Treasury, in partnership with the Department of Public Enterprises, is instituting a series of measures to stabilise finances at the various stateowned companies. The sustainability of government finances remains important and critical to attain and maintain, not only for credit ratings’ sake, but more importantly for the sake of South Africans. 



“It is with a heavy heart to note that all three major credit ratings agencies currently rate South Africa at sub-investment grade. However, every crisis presents an opportunity. The opportunity we have today is to unite and work together to address our challenges. We as a people have overcome insurmountable challenges in the past and we can still overcome. We shall rise. We have to rise. We owe it to ourselves,” Minister Mboweni said. 



Government urges all South Africans to unite, remain positive and continue to work handin-hand to turn the economy around.

Government’s response to Moody’s downgrade of SA to junk status

By South Africa&#8217;s Treasury 



The International Monetary Fund (IMF) published the outcome of its Article IV Consultation with South Africa, which was held from 6 – 21 November 2019. Part of the surveillance function, as prescribed in the IMF’s Articles of Agreement, requires that the IMF visits each member country twice a year to conduct economic and financial assessments of government policies and provide policy recommendations. The IMF staff held meetings with the South African government, the South African Reserve Bank, stateowned enterprises (SOEs), business, organised labour, and academia. The outcome of their consultation is summarised in an Article IV Report, which was also considered by the IMF Executive Board. 



IMF Findings 



The IMF states that South Africa has undeniable economic potential, which remains largely untapped. However, it notes that downside risks to the economy going forward, include: (i) weak economic growth, (ii) deteriorating fiscal and debt positions and (iii) difficulties in the operations of state owned enterprises (SOEs). 



The IMF’s baseline scenario assumes that partial reform implementation and continued governance improvement will lift business confidence and gradually allow a limited recovery of investment and consumption. It forecasts South Africa’s growth to gradually increase from 0.4 percent in 2019 to 0.8 percent in 2020 and to 1.0 percent in 2021. However, it warns that per-capita growth will continue to contract in the near term. 



The IMF recommends that South Africa creates a conducive environment for private sector investment and takes a decisive approach to implement structural reforms in order to boost economic growth. These include reducing the cost of doing business, streamlining operations of SOEs, releasing the spectrum, improving governance, promoting competition in product markets and addressing labour market issues. 



Government’s response 



National Treasury acknowledges the difficult juncture South Africa is at. It projects subdued short-term growth, but expects a stronger recovery in confidence moving forward that would result in GDP growth of 1.7 percent by 2022. Average inflation expectations for 2019 have fallen from 6 percent to 4.5 percent. Most recently, in January 2020, the South African Reserve Bank cut its repurchase rate by 25 basis points, taking into consideration inflation expectations. 



Enquiries: Communications Unit Email: media@treasury.gov.za Tel: (012) 315 5046 



The economic outlook is subject to risks, both domestic and external. Domestically, failure to address governance and operational issues, specifically at State Owned Enterprises (SOEs), would continue to weigh negatively on the outlook. National Treasury is mindful of the fiscal risks that SOEs, particularly electricity utility Eskom, present to the fiscal framework. Furthermore, there is commitment to resolve the challenges facing South African Airways (SAA). The airline has been placed under voluntary business rescue to improve its financial position. Externally, the performance of the global economy has an impact on South Africa, as an open, small economy. 



Government has progressed in implementing many of the reforms to revive the economy, however, more urgency is required in the speed of implementation. 



Finally, National Treasury remains committed to implementing prudent fiscal policy to achieve a low primary balance, excluding Eskom provisions, by 2022/23 in order to ensure a stabilisation of debt by 2025/26. Government continues to work towards moving South Africa forward and realising strong, sustainable, balanced and inclusive growth that will improve the lives of all South Africans.

IMF assesses SA’s economy. These were its findings…

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U.S President Donald Trump’s new 300 billion dollar tariff on Chinese goods is set to take effect from the first of September. To discuss the implications of this for global trade and review this week activities at Nigeria’s money markets, Ifueko Olotu, Team Lead of Treasury Coverage at Access Bank joins CNBC Africa for more.

China-U.S trade relations set for a twisted turn: What are the implications thereof?

By Moody&#8217;s Investors Service
London, 23 March 2018 &#8212; Moody&#8217;s Investors Service today confirmed the long-term issuer and senior unsecured ratings of the Government of South Africa at Baa3, as well as the (P)Baa3 senior unsecured shelf and senior unsecured MTN program ratings. The outlook was changed to stable. The rating actions conclude the review for downgrade that commenced on 24 November 2017.
The confirmation of South Africa&#8217;s ratings reflects Moody&#8217;s view that the previous weakening of South Africa&#8217;s institutions will gradually reverse under a more transparent and predictable policy framework. The recovery of the country&#8217;s institutions will, if sustained, gradually support a corresponding recovery in its economy, along with a stabilization of fiscal strength.
The stable outlook reflects a careful balance of risks. The new administration faces equally significant opportunities and challenges. Steady progress in meeting the objectives set out in the President&#8217;s recent State of the Nation Address (SONA) will be needed if the recovery in confidence that will be essential for the country&#8217;s economic and fiscal prospects is to be sustained. Success offers the prospect of a virtuous circle of economic recovery, fiscal consolidation and rising social cohesion. But the political, policy and practical challenges of meeting diverse economic, social and fiscal objectives cannot be underestimated. Failure, at least as perceived by investors or voters, could lead to a further cycle of eroding economic, fiscal and institutional strength.
In a related decision, Moody&#8217;s confirmed the government&#8217;s other short-term rating at (P)Prime-3. Moody&#8217;s also confirmed the Baa3 backed senior unsecured debt issued by ZAR Sovereign Capital Fund Propriety Limited, a special purpose vehicle whose debt issuance is ultimately the obligation of the South African government, and changed the outlook to stable.
South Africa&#8217;s long-term local-currency bond and bank deposits ceilings remain unchanged at A2, and the long-term and short-term foreign-currency bond ceilings are also unchanged at A3/Prime-2. The long-term foreign-currency bank deposits ceilings remain at Baa3, while the short-term foreign-currency bank deposits ceiling remains at Prime-3.
RATINGS RATIONALE
RATIONALE FOR CONFIRMING THE Baa3 AND (P)Prime-3 RATINGS
FIRST DRIVER &#8212; HALT IN THE DETERIORATION OF SOUTH AFRICA&#8217;S INSTITUTIONAL FRAMEWORK, WITH LONG-STANDING STRENGTHS PRESERVED AND SOME REBUILDING OCCURRING
The recent change in political leadership appears to have halted the gradual erosion of the strength of South Africa&#8217;s institutions. With changes in governance, a number of key institutions, including the Treasury, the South African Revenue Service (SARS) and key State-Owned Enterprises (SOEs) have embarked on the recovery of their earlier strength.
The technical strength and independence of South Africa&#8217;s media, civil society and institutions, including key ministries, the Reserve Bank and the judiciary, have been critical in sustaining the country&#8217;s credit profile over time. However, recent years have seen a gradual erosion in the strength of some key institutions, with a correspondingly negative impact on economic and fiscal strength and on the effectiveness of policymaking. High and rising concerns regarding endemic high-level corruption, &#8216;state capture&#8217; and pressures on the mandate and independence of key policy-making institutions such as the Reserve Bank have materially damaged economic confidence and effective policy-making, exacerbating the erosion in the government&#8217;s balance sheet.
Examples of the erosion of the government balance sheet are diverse, but include the increasingly entrenched financial challenges facing key SOEs, the decline in the capacity of SARS to collect revenue for the government and, most recently, the absence of any clear policy direction in the Medium Term Budget Policy Statement (MTPBS) published in October 2017, a key driver of Moody&#8217;s recent review of South Africa&#8217;s credit rating.
The recent change in political leadership offers a real prospect of a decisive reversal in that erosion of strength. While it is still very early days, the speed with which the President has moved to replace the leadership in key institutions, including the Ministries of Finance, Mineral Resources and Public Enterprises and most recently in SARS, illustrates the resolve to address the problems of the recent past and to set the state, society and the economy on a new and positive path. At the same time, the ambitious reform agenda set out in the SONA illustrates an acknowledgement of, and the intent to address, the range and depth of South Africa&#8217;s economic, fiscal and social problems.
SECOND DRIVER &#8212; IMPROVED GROWTH PERFORMANCE AND PROSPECTS
The change in political leadership comes in parallel with growing signs of cyclical, and perhaps structural, improvements in economic growth.
2017 was the second year in a row when growth outturned higher than initially forecast. Even if the improvement was to a large extent cyclical, driven by external demand and by one-off factors such as the easing of the drought, the prospect of higher than expected growth this year and next allows the government some additional fiscal and political space in which to pursue reforms.
Moreover, the recovery in growth has been mirrored more recently by a sharp recovery in business and consumer confidence, illustrated both in surveys, and by other indicators such as the recent recovery in the value of the rand. While confidence can dissipate quickly, if sustained through further actions, it offers the prospect of rising levels of investment in South Africa&#8217;s economy and enhanced medium-term growth.
The government recognizes the need to support improving confidence with steady progress on structural reform, including in the areas of mining, energy, the SOE sector and competition. Future growth prospects will inevitably reflect its progress in those areas. For now, though, the enhanced political and policy certainty ushered in by the recent changes offers some confidence that renewed business confidence will be sustained.
THIRD DRIVER &#8212; FISCAL ADJUSTMENT PLANS THAT WOULD STABILIZE AND EVENTUALLY REDUCE THE DEBT BURDEN
In marked contrast to last October&#8217;s MTPBS, the 2018 budget outlines a clear strategy for addressing rising fiscal pressures, with a front loaded, revenue-driven, fiscal adjustment, supported by material cuts in expenditures in this and subsequent years needed to finance, inter alia, rising expenditure on education.
The recently-announced one percentage point increase in VAT will broaden the fiscal policy response beyond the expenditure controls on which the government has increasingly relied in recent years. However, its significance goes beyond the moderate increase in revenues (of around Rand 22 billion) that the increase will allow. As the first increase in indirect taxes for over two decades, the change signals a marked, and credit positive, policy shift.
Overall, Moody&#8217;s now expects the government&#8217;s debt burden to stabilize at around 55% of GDP over the 2018-2020 period.
Significant uncertainties remain, and risks are tilted to the upside. Over the near-term, the departmental cuts required to support (inter alia) the increased spending on education announced under the previous Presidency will test policymakers and administrators alike. Hard political choices will arise; spending pressures from, for example, public wages and the cost of higher education, will persist. The still-fragile state of many SOEs, in particular Eskom Holdings SOC Limited, poses material contingent liabilities.
Set against that, a continued recovery in growth would boost revenues and provide further policy space.
RATIONALE FOR A STABLE OUTLOOK
The stable outlook balances upward and downward pressures.
Marshalled and developed by strong institutions pursuing an effective set of reforms and policies, South Africa&#8217;s economy has significant growth potential. A combination of growth, expenditure restraint and further improvements in the breadth of the revenue base and in collection capacity should, if pursued effectively, lead to the debt trajectory stabilizing in the next two to three years and ultimately reversing. Incoming policymakers have emphasized their commitment to addressing risks to the debt trajectory growth emanating from the SOE sector.
However, the authority and capacity of the incoming administration remains to be fully tested. The divisions within the ANC, and more broadly within society, as illustrated by the increasingly pluralistic political environment, will present policymakers with diverse and sometimes conflicting political priorities which will create policy uncertainty. The policy agenda itself is broad and challenging, and contains elements that have the potential to create tensions within the administration and society.
Two immediate examples are the still-to-be-agreed Mining Charter and the land appropriation without compensation initiative. On the former, the President has emphasized his intention to balance the conflicting priorities of industry, unions and the broader goal to encourage black economic empowerment of the industrial base. Satisfactory progress in this area will be an important test of the ANC&#8217;s authority and ability to reach the compromises needed to push through a broader reform agenda. Land appropriation is a long-standing objective of the ANC which has, for a number of reasons, assumed a higher profile in recent years. It remains unclear how the new government will pursue its objectives in this area, or what impact that will have on agricultural production and security. How the government acts will also provide important insights into how it plans to balance nearer-term economic objectives (to sustain confidence and promote investment) against longer-term social and economic objectives (to address unemployment, inequality and poverty).
In short, the outlook reflects two possible visions for the sovereign credit ratings: the first is a positive one in which a virtuous cycle emerges of economic growth, fiscal prudence and mounting social cohesion. The second is a more negative one in which policy ineffectiveness continues to undermine confidence, growth and social cohesion, with inevitable consequences for the government&#8217;s balance sheet.
WHAT COULD CHANGE THE RATING &#8212; UP
Future rating actions will most likely be driven by the effectiveness with which the government is able to address the institutional problems of the recent past in the pursuit of its economic and fiscal reform agenda.
The successful implementation of structural reforms to raise potential growth as well as stabilize and eventually reduce the debt burden, including through reforms to the SOE sector which reduce contingent liabilities, would put upward pressure on the rating. In particular, reforms resulting in higher savings and investment rates and broad-based, sustainable, job-creating growth, alongside rebuilding of fiscal buffers would provide positive momentum to the rating. In reaching such a conclusion, Moody&#8217;s would consider the longer-term ramifications of near-term fiscal and economic outcomes, as well as progress in enacting reform measures and resolving long-standing structural issues, including those relating to mining and agriculture.
WHAT COULD CHANGE THE RATING &#8212; DOWN
Conversely, South Africa&#8217;s ratings would be placed on negative outlook or review for downgrade, and eventually downgraded if it were to become clear that the government&#8217;s commitment to, or capacity to engineer, revived growth and debt stabilization were to falter. In reaching such a judgment, Moody&#8217;s would consider the government&#8217;s success in delivering planned structural reforms in the period between now and the 2019 Presidential elections, and to the impact of its actions or inaction on the investment climate and on near-term and potential growth. Negative developments in fiscal policy would also weigh on the rating. This includes the potential for SOE sector risks crystallizing in a manner which raised the government debt burden and put it on a higher trajectory.
GDP per capita (PPP basis, US$): 12,321 (2016 Actual) (also known as Per Capita Income)
Real GDP growth (% change): 0.3% (2016 Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 7.1% (2016 Actual)
Gen. Gov. Financial Balance/GDP: -2.5% (2016 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -3.2% (2016 Actual) (also known as External Balance)
External debt/GDP: 52% (2016 actual)
Level of economic development: Moderate level of economic resilience
Default history: At least one default event (on bonds and/or loans) has been recorded since 1983.
On 20 March 2018, a rating committee was called to discuss the rating of the South Africa, Government of. The main points raised during the discussion were: The issuer&#8217;s economic fundamentals, including its economic strength, have materially increased. The issuer&#8217;s institutional strength/framework, have materially increased. The issuer&#8217;s governance and/or management, have materially increased.
The principal methodology used in these ratings was Sovereign Bond Ratings published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

Moody’s gives SA reprieve, keeps rating one notch above junk

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Uche Ogboh, Team Lead, Assets and Liabilities Management, treasury and financial institutions at Diamond Bank joins CNBC Africa for a fixed income and forex update.

CBN releases Q2 2018 T-bills programme

By Monique Vanek
(PRETORIA) For the first time since 1993 Treasury has decided to hike South Africa’s value-added tax (VAT) by one percentage point to close its revenue shortfall gap of R48.2bn in 2018.
In its Budget Review it said the decision was taken as it was estimated “to have the least detrimental effects on economic growth and employment over the medium term”. Also when compared to other countries it was among the lowest, unlike corporate tax (see graphs below).
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How SA’s new VAT rate compares to the rest of the world

By Monique Vanek
(PRETORIA) Government faces a revenue gap of R48.2bn in 2018. This was revealed by South Africa’s Finance Minister Malusi Gigaba in his maiden Budget speech on Wednesday. To address this shortfall, Treasury plans to hike value-added tax (VAT), for the first time since 1993 as well as place a greater burden of tax on wealthy South Africa, whilst protecting the most vulnerable. Although, tax revenue collections for 2017/18 are expected to marginally outperform projections set out in the 2017 Medium Term Budget Policy Statement (MTBPS), Gigaba in his speech argued that acting now will improve the economic outlook and increase space for investment growth.
Treasury in its Budget Review argues that the decision to increase the VAT rate by one percentage point was taken as it was estimated “to have the least detrimental effects on economic growth and employment over the medium term”.
Tax Proposals
The tax proposals will generate an additional R36bn in tax revenue for 2018/19.The largest contributor will be the R22.9 billion from the one percentage point increase in VAT and R6.8 billion from lower-than-inflation increases to the personal income tax rebates and brackets.
The main proposals are:
<ul>
<li>VAT rate to increase from 14% to 15%.</li>
<li>Zero-rating of basic food items will limit impact on poorest households.</li>
<li>Brown bread and whole wheat brown bread will be zero-rated. Products such as rye or low GI bread will not be zero-rated.</li>
<li>Personal income tax rebates &amp; brackets to increase below inflation, see table below.</li>
<li>No adjustments to the top four income tax brackets, and below inflation adjustments to the bottom three brackets.</li>
<li>Ad-valorem excise duty rate on luxury goods to increase from 7% to 9%.</li>
<li>Effective 1 April 2018, the maximum ad valorem excise duty for motor vehicles will increase from 25% to 30%.</li>
<li>Classification of cellular telephones will be updated to include “smartphones” to ensure they attract ad valorem excise duties.</li>
<li>Government will consult on a proposal to replace the flat rate for cellphones with a progressive rate structure based on the value of the phone.</li>
<li>From March 1 a higher estate duty tax rate of 25% for estates greater than R30mn will be introduced. To limit the staggering of donations to avoid the higher estate duty rate, any donations above R30mn in one tax year will also be taxed at 25%.</li>
<li>52c/l increase in fuel levies: &#8211; comprising 22c/l for general fuel levy &amp; 30c/l in Road Accident Fund levy.</li>
<li>Alcohol &amp; tobacco excise duties to increase between 6 &amp; 10%.</li>
<li>Carbon Tax Bill expected to be enacted before the end of 2018. Tax to be implemented from 1 January 2019.</li>
<li>Plastic bag levy to be increased by 50% to 12 cents per bag, effective 1 April 2018.</li>
<li>From 1 April, environmental levy on incandescent light bulbs will increase from R6 to R8 to incentivise more energy-efficient behaviour.</li>
<li>Vehicle emissions tax will be increased to R110 for every gram above 120 gCO2/km for passenger vehicles and R150 for every gram above 175 gCO2/km for double cab vehicles, effective 1 April 2018.</li>
<li>Government will publish a discussion document outlining design options for the proposed acid mine drainage levy.</li>
<li>Health promotion levy, which taxes sugary beverages, will be implemented from 1 April 2018.</li>
<li>Over the next three years, below-inflation increases in medical tax credits will help government to fund the rollout of national health insurance. Government will increase the medical tax credit from R303 to R310 per month for the first two beneficiaries, and from R204 to R209 per month for the remaining beneficiaries. The medical tax credit will be reviewed after the Davis Tax Committee presents its recommendations.</li>
</ul>
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Treasury’s Budget Review also highlights that it has taken years to build the foundation of trust that underpins South Africa’s tax morality. But such trust is fast eroding; to combat this the president will establish a commission of inquiry into the functioning and governance of the South African Revenue Service (SARS). Steps will also be taken to improve the governance and accountability of SARS, and to strengthen the operational independence of the Tax Ombud.

SA’s #Budget2018 tax changes highlighted: VAT to increase

Words by Treasury
The Minister of Finance, Malusi Gigaba, notes with grave concern the statement by Steinhoff International Holdings N.V., on Tuesday evening, with regard to accounting irregularities in its recent financial statements.
As a listed company on the Johannesburg Stock Exchange (with its primary listing on the Frankfurt Stock Exchange), investors rightly expect the highest degree of honesty and integrity in the financial statements and reports of companies such as Steinhoff, to protect investors from market abuse and manipulation. As the regulator for capital markets in South Africa, the Minster supports the decision by the Financial Services Board, which it has conveyed to the National Treasury, that it has instituted an independent investigation into possible false and misleading reports in terms of section 81 of the Financial Markets Act, as well as any related abuses; this is over and above an internal investigation by the Johannesburg Stock Exchange (JSE) to probe the extent of the accounting irregularities at Steinhoff. The Minister expects the JSE to report its findings to the FSB. South African legislation allows for appropriate action against any person who has not exercised his or her fiduciary responsibility to shareholders, some of whom are institutional and retirement funds.
The Minister is mindful that many retirement and savings funds may be adversely affected by the loss in the value of Steinhoff shares; therefore, members of retirement funds should be reassured that current regulations limit the extent to which any one fund may be invested in any one company. That notwithstanding, the Minister has requested the retirement funds regulator at the FSB, Public Investment Corporation (PIC), the Government Employees Pension Fund (GEPF) to provide him with a report on the extent of exposure for retirements funds. The Minister expects that this report will give assurance that the interests of the shareholder are protected, including retirement and savings funds.
Considering the recent call for corporate South Africa to provide accurate reporting of its financials, the Minister will also have discussions with other appropriate regulators, like the Independent Regulatory Board for Auditors (IRBA), to assess any likely lapses in financial and auditing reporting.
The Minister wishes to reiterate his call on all South African corporations to maintain the highest practices of corporate good governance, reflecting that South Africans have entrusted them with their pension savings.

Treasury comments on Steinhoff, backs FSB’s investigation

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According to reports, President Jacob Zuma has asked Finance Minister Malusi Gigaba to finalise proposals for R25 billion worth of spending cuts and create revenue boosting measures worth R15 billion.

Treasury unlikely to hit SA’s corporates with tax hikes to close R40bn tax hole

South Africa’s rand tumbled more than one percent and the risk premium on government bonds soared on Monday over news of a top Treasury official resignation, financial woes at the sole power utility and political jostling in the ruling party.
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A report by a presidential commission that government raise spending on higher education saw muted response from markets, with traders saying it was short on detail.
The rand, which weakened after the presidency said it would release the commission’s findings at midday, was little changed after it was published.
It slipped to a one-year low on Friday amid reports President Jacob Zuma was preparing to introduce free higher education, which would put added pressure on public finances.
At 1120 GMT the rand was at 14.5200 per dollar having tumbled as much as 1.1 percent to session-worst 14.5425, its weakest level since Nov. 18 2016.
Government bond due 2026 also weakened. Yields on the paper climbed 14.5 basis points to 9.495 percent, its highest level since May 2016.
South African 5-year credit default swaps, a measure of the cost of insuring the country’s debt, hit a four-month high, stoked by reports of power firm Eskom’s financial troubles.
Eskom said it was not insolvent but was facing serious liquidity issues.
Treasury confirmed Michael Sachs’ resignation, saying he wanted to join the civil service in a different capacity.
Fin24 said Sachs resigned over interference by Zuma at the Treasury.
“The rumour that a senior treasury official has resigned is obviously the main reason the rand moved lower,” said chief dealer at Bidvest Bank Kumeran Govender.
“But they’re also reports that ANC Secretary-General Gwede Mantashe is under pressure and that hasn’t helped either.”
Local news reported that Mantashe was facing calls to quit by some members of the party. The ANC denied the claims.
On bonds, Govender added that fund managers, particularly from primary dealers, were offloading debt ahead of a government bond auction on Tuesday where Treasury will increase issuance.
Senior currency dealer at Standard Bank Oliver Alwar said investors were jittery over the rumours of Sachs resignation and increased government spending on higher education ahead of visits to South Africa next week by ratings agencies.
“It’s looking more and more likely that we will be downgraded,” Alwar said.
Stocks firmed, with the Top 40 index up 0.52 percent to 53,706 points, and the wider All-Share index 0.42 percent firmer at 60,027 points.
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Reporting by Mfuneko Toyana; Editing by James Macharia
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South Africa’s Treasury turmoil sends rand to one-year low

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The rand tumbled more than one percent as the risk premium on government bonds soared over news that top Treasury official Michael Sachs has resigned , financial woes at Eskom, political jostling in the ruling party.

Treasury “not captured” by president – spokesperson

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Treasury Deputy Director General for the budget office, Michael Sachs resigned last week following allegations of meddling by the Presidency.

Treasury’s loss of institutional memory is placing it in danger – economist

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SA Finance Minister, Malusi Gigaba spoke about the urgency to resolve money issues that have plagued South African Airways over the years. The airliner received yet another bailout from Treasury, ranging around R2.2 billion.

South African Airways receives R2.2 billion bailout

CAPE TOWN (Reuters) &#8211; South Africa&#8217;s cabinet has confirmed Dondo Mogajane as permanent director general at national treasury, it said on Thursday.
Lungisa Fuzile resigned as the department&#8217;s highest official shortly after his political head, Pravin Gordhan, was removed as finance minister.
Mogajane has worked for the department since 1999 and was most recently the deputy director-general responsible for public finance.
(Reporting by Wendell Roelf; Writing by Joe Brock; Editing by Ed Stoddard)
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South Africa’s Dondo Mogajane confirmed as treasury’s director general

Olivia Kumwenda-Mtambo | JOHANNESBURG
South Africa&#8217;s negative economic growth is a risk to fiscal targets and puts pressure on the government to intensify growth programmes as a matter of urgency, the Treasury said on Tuesday.
South Africa entered recession for the first time in eight years, led by weak manufacturing and trade, data from Statistics South Africa showed.
<blockquote>&#8220;This worse-than-expected GDP outcome introduces significant downward bias to the GDP growth estimates communicated in the 2017 budget review, which projected 2017 GDP growth at 1.3 percent,&#8221; the Treasury said in a statement.</blockquote>
&#8220;The current growth rate, if sustained, will lead to a further decline in GDP per capita and revenue, risking the sustainability of our fiscal framework and more importantly undermining the delivery of social services.&#8221;
(Reporting by Olivia Kumwenda-Mtambo; Editing by Robin Pomeroy)
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South African recession puts fiscal targets at risk: Treasury

Treasury statement 
<a href="http://cnbc.africa/trending/sa-downgrade/2017/04/07/fitch-downgrades-sa/">Fitch Ratings</a> has downgraded government’s long-term foreign and local currency debt to &#8216;BB+&#8217; from &#8216;BBB-&#8216; 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&#8217;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 <a href="http://cnbc.africa/news/southern-africa/2017/04/03/south-africa-long-term-foreign-currency-rating-cut-bb-political-institutional-uncertainty-outlook-negative/">reasons that Standard and Poor’s gave for their recent downgrade.</a>
http://cnbc.africa/news/2017/04/06/sp-downgrades-seven-south-african-banks/
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&#8217;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. 
 
BANKING ASSOCIATION OF SOUTH AFRICA statement 
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.
http://cnbc.africa/trending/cabinet-reshuffle-17/2017/04/03/business-leaders-response-to-sa-junk-status/
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.
http://cnbc.africa/trending/cabinet-reshuffle-17/2017/04/04/south-africa-cliff-edge-just-1985/
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.

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

By Bernardo Vizcaino
Kenya&#8217;s government has unveiled a package of initiatives under its latest budget to develop Islamic finance in the country, as part of efforts to mobilise local funds and set Nairobi as a regional hub for the sector.
The moves could spur Kenya&#8217;s decade-old Islamic banking sector and help the government fund infrastructure in a country where Muslims account for about 10 percent of the population of some 44 million.
Finance Minister Henry Rotich outlined the steps as part of the country&#8217;s 2017/2018 budget, released on Thursday, aiming to level the playing field between Islamic and interest-based transactions.
Amendments to the Public Finance Management Act will also allow the government to issue Islamic bonds, or sukuk, as an alternative funding source.
This could prove useful for a government that has set aside billions for infrastructure, with a fiscal deficit set at 524.6 billion shillings ($5.10 billion).
Implementation could be quick as most changes have already been drafted by the Islamic Finance Project Management Office (PMO), a body setup by the government to coordinate efforts among its regulatory agencies.
&#8220;The primary objective is to prepare the groundwork for a sovereign sukuk but also equally to attract corporate sukuk from the region,&#8221; said Farrukh Raza, managing director of IFAAS, an Islamic finance consultancy which designed the PMO&#8217;s framework.
The government has commissioned IFAAS to run the PMO, which is working with law firm Simmons &amp; Simmons to help develop Islamic Finance in Kenya.
The Treasury has said it is considering a debut sale of sukuk this year, although national elections in August could delay those plans.
http://cnbc.africa/videos/2016/09/22/growth-potential-for-islamic-finance-in-africa/
TAX NEUTRAL
The amendments will benefit Kenya&#8217;s two full-fledged Islamic banks and several Islamic windows, which until now have operated by way of exemptions.
They will be joined by Dubai Islamic Bank, which last month received approval in principle for a banking license from the central bank.
Changes to stamp duty would ensure their products are tax neutral against interest-based transactions, as the asset-based nature of Islamic finance contracts often means they can incur multiple tax charges.
This is designed to be revenue neutral to the government and would not compromise fiscal revenues, said Raza.
Exemptions to value added tax would allow returns from Islamic deposits to be eligible for deductions similar to interest-based products. This would apply to individuals, corporates and government entities, Raza said.
The budget also calls for amendments to cooperatives and savings societies, while new regulations will help setup an Islamic pension scheme based on the risk-sharing concept of takaful.
This would aid the government in achieving financial inclusion and financial diversification targets, Raza added.
http://cnbc.africa/news/2016/11/04/ethiopia-looks-to-islamic-finance-to-tap-domestic-savings/
(Reporting by Bernardo Vizcaino in SYDNEY; Editing by Randy Fabi)
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