Ratings agency Fitch’s decision to further downgrade South Africa’s foreign and local currency debt ratings from BB+ to BB, with a negative outlook, underscores the urgent need for Finance Minister Tito Mboweni to table a new emergency budget immediately after the Covid-19 lockdown is over, the Democratic Alliance said on Saturday.
“Fitch makes it clear that the reason for the downgrade is ‘a lack of a clear path towards government debt stabilisation’ and a failure to follow through on plans to cut the cost of the public wage bill,” DA shadow minister of finance Geordin Hill-Lewis said in a statement.
All of these pressures were exacerbated by the economic cost of Covid-19. This underscored that the economic crisis was a result of bad economic policy, no fundamental reform, profligate public spending, and corruption. All of this had left the economy weak and unable to respond in this time of global shock, he said.
It was now clear that none of the assumptions which underpinned the budget Mboweni tabled in February were still reliable. There was still no clear progress on an economic reform agenda, despite renewed verbal commitments. Tax revenue and economic growth “are collapsing”, and the rand had weakened to nearly R20 to the US dollar.
“For example, the budget tabled in February assumes a 5.5 percent growth in VAT revenue this year. Given the devastation the economy is now suffering that target is impossible,” Hill-Lewis said.
It would undermine the credibility of the National Treasury to continue with this budget. It should be discarded and a new budget tabled immediately after the lockdown. This new budget should be the first small step on what would be a long journey to regaining South Africa’s investment grade credit rating.
“But there will be no hope of regaining our investment grade rating without fundamental economic policy reform, most urgently in ending the Eskom monopoly on power generation. There can be little growth in an economic climate that advocates state control, regardless of the evidence,” he said.
- hold a firm line against trade unions who are intent on reversing the decision to cut at least R160 billion from the state wage bill;
- reduce the number of public sector managers who do not deliver front-line services;
- support the DA’s proposed Fiscal Responsibility Bill, which holds the key to reducing national debt and debt service costs;
- free South Africans from Eskom’s death spiral by opening the energy market to IPPs;
- disinvest from zombie state-owned enterprises and immediately put a stop to further bailouts; and
- introduce far ranging reforms to ease up the labour regime and end the centralised power of bargaining councils, he said.