The Federation of Unions of South Africa (FEDUSA) is deeply shocked by Moody’s downgrading of South Africa’s sovereign credit rating to junk status or sub-investment grade with a negative outlook late on Friday night.
Moody’s downgrading of South Africa follows similar actions by Standard & Poor and Fitch earlier this year. At the time, Moody’s placed South Africa on review for downgrading. Moody’s has cited the weakening of South Africa’s institutional framework; reduced growth prospects reflecting policy uncertainty and slower progress with structural reforms; and the continued erosion of fiscal strength due to rising public debt and contingent liabilities as the principal triggers of the downgrade to Baa3 from Baa2.
Moody’s said there is evidence of systemic erosion of the independence of key South African institutions such as the judiciary, the Reserve Bank and National Treasury in reference to the first trigger of the downgrade.
“How many more times must South African citizens face the wrath and deal with these consecutive blows due to ill-fated decision making? FEDUSA is outraged that our economy and our membership at large have now been faced a double whammy in one week: first the negative contraction of the GDP statistics and now the second nail in the coffin due to the downgrade, “said FEDUSA Acting General Secretary Riefdah Ajam.
“The abrupt Cabinet reshuffle in March illustrate a gradual erosion of institutional strength. The institutional framework has become less transparent, effective and predictable. Policymakers’ commitment to previously articulated reform objectives is less certain. Moody’s Vice President, Senior Analyst and Lead Sovereign Analyst for South Africa, Zuzana Brixiova said in a statement.
“FEDUSA has continuously emphasised the critical importance of safeguarding National Treasury from all external shocks but ill-fated decision making is now leading towards plummeting the country into a state of despair. Approximately R500 billion was wiped from the South African economy after former Finance Minister Pravin Gordhan and his Deputy Mcebisi Jonas were fired in a mid-night by President Zuma that shook the economy,” said Ajam.
“What more evidence do we need ? FEDUSA has lost all faith and credibility in President Zuma and calls on Number 1 to do the honourable things and save our beloved country. The time has come”.
Brixiova said underlying political dynamics which triggered the Cabinet reshuffle at mid-night on March 31 are posing a threat to short and medium growth
“Uncertainty over near- and medium-term policy priorities has damaged investor confidence, reducing investment in South Africa’s economy which fell by 3.9% in 2016 and is projected to remain subdued in 2017. Investment levels are likely to remain weak until a more stable policy environment emerges. Second driver — reduced growth prospects,” Brixiova said further in the statement.
Moody’s said the current stagnation will hold back the stabilization of South Africa’s debt-to-GDP ratio. FEDUSA had hoped that the recent appointment of Dondo Mogajane as the new Director General at the National Treasury would move towards projecting a renewed outlook for South Africa’s financial markets and the economy overall, due to his long standing senior role at the Treasury as well as his senior advisor capacity role at the World Bank.
“Mogajane was a diligent member of Team South Africa and FEDUSA believes his appointment will allow him to contribute towards much needed higher levels of inclusive growth. The federation certainly hoped the Mogajane’s appointment would bring a new sense of confidence in South Africa by credit rating agencies and investors,” said Ajam.
“Instead of stabilizing in 2018/19 Moody’s now expects the debt burden will reach about 55% of GDP that year and continue to rise gradually afterwards. While the National Treasury has reiterated its commitment to expenditure ceilings, pressures to raise public wages will again rise in the next fiscal year as the end of the current three-year agreement will open room for new negotiations. Underperformance on revenue collection is another risk,” Brixiova concluded in the statement.
“FEDUSA is part of the three – a – side Task Team setup on 12 April 2017, spearheaded by the Deputy President and Ministers within NEDLAC to deal with matters relating to the sovereign downgrade. The work of the Task Team needs to proceed with haste to ensure that confidence and reinvestment in the economy can be reignited,” concluded Ajam.
FEDUSA is the largest politically non-aligned trade union federation in South Africa and represents a diverse membership from a variety of sectors in industry. See www.fedusa.org.za for more information.
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