President Cyril Ramaphosa has vowed that the country’s downgrade by Moody’s to junk status will not derail efforts to fight the coronavirus, but warned that the development would have a negative impact on the ailing economy.
In an address to the nation on Monday evening regarding the progress of the country’s 21-day national lockdown, Ramaphosa acknowledged the hit taken by business as a result of the unprecedented shutdown.
On Friday, Moody’s cut South Africa’s sovereign credit rating to sub-investment grade, joining other two global ratings agencies, Fitch and S&P, which have already downgraded the country.
Being rated at sub-investment grade will “significantly increase the cost of borrowing” for the country, Ramaphosa said.
However, he added: “This development will not diminish in any way our response to the coronavirus pandemic.”
Moody’s lowered South Africa’s rating from Baa3 to Ba1 and kept the outlook negative.
Ramaphosa reiterated that government was committed to implementing reforms, underlining their importance given the additional challenge presented by the virus.
“Within the constraints of the current crisis, we remain committed to implementing structural economic reforms to address weak economic growth, constrained public finances and struggling state-owned enterprises,” said the president.
Government has come up with measures to cushion Small and Medium Enterprises from the economic impact of the virus, which, among other things, include relief on debt repayments and assistance in meeting operational costs.
A Solidarity Fund has also been set upby government to mitigate the impact of the virus and support vulnerable South Africans. Donations are tax deductible.
The Rupert and Oppenheimer families have each made contributions of R1 billion to the Solidarity Fund.
Ramaphosa told the nation that government was working with social partners to identify further measures to limit the damage to the economy.
On downgrading South Africa, Moody’s cited the deterioration in SA’s fiscal strength and “structurally very weak growth”.
The downgrade means the country’s Treasury bonds will now be excluded from World Government Bond Index, resulting in substantial capital outflows.