South African central bank cuts rates and doubles down on lower inflation target
Watch: Gigaba knew about S&P’s decision on Friday but did not say so due to ‘ethics’
10:13 CAT | 04 Apr 2017
AFP / Malusi Gigaba
Despite saying that a single individual could not bring down a country’s credit rating, Finance Minister Malusi Gigaba said he knew that S&P Global Ratings would downgrade SA’s sovereign outlook on Friday.
Following the shock of S&P’s credit-rating downgrade that left SA on junk status with a negative outlook, Gigaba addressed the media at the Treasury on Tuesday, following a briefing with former Finance Minister Pravin Gordhan.
“When I spoke on Saturday, I indicated that I had spoken to Moody’s and Fitch. S&P had already made the decision on Friday and there was nothing we could do to change that,” said Gigaba.
“The reason I didn’t take you into my confidence is because they had taken me into their confidence. I had to afford them the courtesy of not divulging the information.”
He said it was a matter of ethics.
“SA has R2.2-trillion in public debt. R20bn of this debt is paid in foreign currency,” said Gigaba. Yesterday, S&P lowered this debt to below investment grade.
The downgrade was attributed to the recent executive changes that have put fiscal outcomes and the contingent liabilities to the state at risk, and the view that political risks would remain high
“While the financial executive has changed, government’s policy remains the same,” said Gigaba. “Our fiscal objectives remain unchanged.”
He added that he was confident in SA’s current fiscal policy.
Gigaba said he was committed to showing business leaders, organised labour and ratings agencies the economic policies to be optimistic about. He did, however, add that government was committed to radically transforming the economy.
“We need to re-ignite the nation’s growth engine,” said Gigaba.
He said: “A country becomes junk status when two out of three rating agencies downgrade you to that status.”
He added that a number of other variables now needed to be considered including inflation and rising interest rates and all South Africans would be impacted by some of these effects.
“But the country has no reason to be despondent. The other two rating agencies have not adversely rated us.”
Moody’s has put SA under review while Fitch will announce their rating on Friday.
He said he didn’t want to comment on the conversations out of respect.
“I’m not saying it’s easy to get out of a rating downgrade but I think we can manage the political and policy risks that have been highlighted,” said Gigaba.
With regards to bringing his staff into Treasury, Gigaba said a director-general or deputy director-general in home affairs may be competent but that didn’t mean they understood the mandate of Treasury.
He addressed SOEs calling their governance a matter of top priority and that there would be a close eye on their contingent liabilities and balance sheets.
He added that he would still be briefed about SOEs that were of concern.
“We would want our SOEs being financially stable. Therefore we will support very strongly the SOE reforms taking place in government at the moment,” said Gigaba.
Gigaba implied his statement on Monday was misunderstood and said that he had not lied.
“Don’t attribute a rating downgrade to an individual because it was a whole range of factors that contributed to the downgrade.”
Source: Business Day
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