The downgrade of South Africa’s sovereign debt rating to junk
by Moody’s has given renewed impetus to the drive to structurally reform the
country’s economy, Minister of Finance
Tito Mboweni has said.

The rating agency lowered SA’s sovereign credit rating to the first rung of noninvestment grade, or junk, on Friday evening, citing a deterioration in the country’s fiscal strength and “structurally very weak growth”. The outlook remains negative.

Ahead of Friday’s decision, Moody’s was the last of the
three major credit rating bodies to still assess SA’s sovereign debt at investment
grade. Fitch and S&P both downgraded SA to subinvestment grade in 2017.

The finance minister on Sunday evening told journalists that
when he informed President Cyril Ramaphosa that the rating agency was set to announce
a downgrade, Ramaphosa replied that the country needs to now move more boldly
on structural reform

“I said ‘Hallelujah,” said Mboweni. 

Due to the downgrade, economists expect SA’s borrowing costs
and government bond yields to rise. Increased capital outflows, meanwhile, are
expected to further weaken the rand/dollar exchange rate.

In its rating action on Friday night, Moody’s said that progress on structural reforms by SA’s government to unlock
growth had been limited, and no initiatives that constitute a
“step-change” for the economy had progressed. It estimates that SA’s debt burden will reach 91% of GDP in
the 2023 fiscal year, above Treasury estimates included in the February budget.

Asked whether structural reform was even feasible in the
current strained financial environment, Mboweni said he would be creating a new
unit within the Ministry of Finance to work on reform called the Vul’indlela unit.

“It will
comprise a few people who will look throughout the government system about
where we are on structural reforms,” he said.

He did not say when the unit would be set up.

Mboweni also said that the SA could, if needed, approach the
World Bank, the New Development Bank (Also known as the Brics bank) or the International Monetary Fund for health-related funding to combat the outbreak of the coronavirus. 

He said this was not necessary at the moment. If funding were needed, his first port of call would be the World Bank, he said.  

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