Moody's downgrade a rejection of Nene's MTBPS

7 November 2014

Moody's decision to downgrade the South African government's sovereign debt rating to BAA2 - just one more downgrade above ‘junk' status - is a significant rejection of Finance Minister, Nhlanhla Nene's, Medium Term Budget Policy Statement.

The downgrade means that Moody's and other foreign investors are less confident in the South African government's ability to pay back its debt. Government will have to borrow money at higher interest rates, placing more pressure on the state's coffers.

Moody's stated that the downgrade was for two reasons:

1. Low economic growth and structural problems like the energy crisis.

2. The increase in government debt, and a constant increase in government debt servicing costs, now totalling 9% of total state revenue.

Moody's would have looked closely at what Minister Nene said on October 22 in his MTBPS. It is an indictment of the Finance Minister that Moody's downgraded our debt status only 16 days after his speech. Clearly, he did not inspire confidence.

To turn things around, Nene needed to propose bold new measures to cut corruption and waste, like calling for a ban on public servants doing business with the state. We lose R30 billion to waste and corruption every year and yet nothing is being done to stop this.

In addition, government has sunk billions into our failing state-owned entities (SOEs), which should have been partially or wholly privatised years ago. The latest MTBPS included another R270 billion for Eskom. There needs to be a radical rethinking of government's approach to state-owned entities.

Unfortunately there was nothing new in Nene's MTBPS and no real commitment to tackle the deficit, the waste in government or our failing SOEs. Instead, Minister Nene announced R27 billion in new taxes, which only outsources the problem to already-burdened South African families.

The DA will study the fiscal framework for 2015/2016 extremely closely and will continue to push for a harder approach to cut waste and corruption. We can improve foreign confidence in our economy, grow the economy and avert tax increases, but it will require private involvement in SOEs, cutting waste and corruption and now policies to promote economic growth.

Statement issued by Dr Dion George MP, DA Shadow Minister of Finance, November 7 2014

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