ANC responds to moves by rating agencies

Zizi Kodwa says recent NEC lekgotla focused on arresting downward growth trajectory


The African National Congress notes Fitch Ratings decision to affirm the country's long-term foreign and local currency Issuer Default Ratings (IDRs) at ‘BBB' and ‘BBB+' respectively. However, Fitch has revised South Africa's outlook to negative from stable, saying the country's growth outlook has deteriorated and this will make it challenging to reduce the budget deficit.

The ANC also  notes the rating decision announced  by Standard and Poor's (S&P) Ratings Agency lowering South Africa's long-term foreign currency credit rating to ‘BBB-‘ from ‘BBB' and the long-term local currency rating to ‘BBB+' from ‘A-‘. In addition, S&P has revised South Africa's outlook to stable from negative.

Both rating agencies are concerned about the platinum strike, weak domestic and external demand which led to GDP contraction in the 1st Quarter 2014. It also feared that is likely to depress 2nd quarter growth. In addition to labour activity, Fitch also highlights high wage demands and electricity constraints as representing  negative supply side shocks. It is also suggested that these will constraint the fiscal space in the context of high budget deficit and rising debt levels.

We are please by the fact that even Fitch is convinced that South Africa has the capacity to reduce the risk of crisis for ,among others, the following factors:

a) The floating exchange rate acts as an effective shock absorber for the economy. Foreign currency- denominated debt and dollarisation rates are low. The banking system is strong with a capital adequacy ratio of 15.5% and a Fitch Viability Rating of 'bbb'.

b) Government debt is largely denominated in local currency (91%) and has a high average maturity of 10 years (including T-bills), which limits exchange rate and financing risk. The central government has cash deposits of 6% of GDP, while deep local capital markets support financing flexibility.

The ANC NEC recently held its biannual Lekgotla on the 6-7 June 2014. The NEC Lekgotla focused on arresting the downward growth trajectory and building on strengths of our economy such as the referred to by Fitch above.

We appreciate the challenges ahead and have made the resolution of the current platinum strike as urgent and prerequisite for building confidence in the economy. Coupled with the proposed metal strike, the impact can be devastating on the economy. We salute those who working hard for the resolution of the platinum strike because the resolution of the strike is not only in the interest of the economy but the workers who have had to endure untold suffering over the past 5 months. We also urge those involved in the metal strike to find amicable resolution of the dispute in the interest of all.

The Lekgotla urges government to take decisive actions to "crowd-in" private investment and speedily address uncertainties with respect to the policy and regulatory framework that deter investment and continue its commitment to pursue counter-cyclical fiscal policy within a sustainable framework.

We also tasked the ANC government to accelerate provision of public infrastructure  to crowd-in private sector investment through activities that utilises infrastructure in mining, manufacturing, agriculture and productive services. Electrictiy was given special status. We acknowledged that funding electricity generation from Eskom alone will be insufficient, accordingly, we will encourage private sector participation in the build programme including large institutional investors such as the retirement fund industry.

On the question of growth, the work programme of the fifth democratic government will be centred on the accelerated implementation of the National Development Plan (NDP). Accordingly, the Deputy President, Mr Cyril Ramaphosa, has been assigned the task of chairing the National Planning Commission and has overall oversight of the implementation and enforcement of the NDP across government.

The process of translating the NDP into detailed programmes and projects by assigning state organs specific responsibilities for which they will be held accountable at the highest level is far advanced.

The necessary reforms to unlock the potential of the South African economy to grow at rates that would accelerate the reduction of unemployment, poverty and inequality are set to be implemented with higher vigour and determination. In our view, it is premature for any pronouncement at this stage on the likely performance of the government that has just taken office.

The ANC calls on all South Africa to work with us and the ANC government to grow this economy for the benefit of all South Africans.

Statement issued by Zizi Kodwa, ANC national spokesperson, June 14 2014

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