S&P downgrade a reflection of ANC incompetence and signals economic crisis

9 March 2023

Note to editors: Please find attached soundbite by Dr Dion George MP.

The ANC's mismanagement of South Africa's economy has once again been exposed by S&P’s unscheduled announcement that it will downgrade its outlook on South Africa’s junk-rated debt from positive to stable.

The announcement by the US credit rating agency deals yet another blow to the country’s efforts to regain an investment-grade rating and signals the downward trend in S&P’s rating of South Africa has yet to reach a turning point.

S&P’s pessimistic assessment reflects the risks to growth posed by rolling blackouts, the glacial pace of government reforms to address infrastructure shortfalls and improve governance at SOE’s, whose “contingent liabilities threaten to weigh on public finances” and will remain a risk to the economy “until there is an adequate track record of improvements in operational and financial performance among these entities”.

The Agency warned that it would lower South Africa’s currency sovereign credit ratings if the government's ongoing reforms to address the power crisis do not progress as planned.

S&P is further concerned about South Africa’s poor track record of procuring and constructing sufficient additional capacity to offset breakdowns and maintenance of its power generation fleet.

The national state of disaster over energy shortages and the creation of an electricity ministry carries the risk that funds allocated under fast-tracked procurement processes may be mismanaged, while there are concerns around the “multiplicity” of ministries that Eskom now reports to.

S&P’s downgrade amplifies the severe pressure South Africa’s economy is already under.

Shocking GDP statistics show that most sectors of our economy, from agriculture to mining, have contracted at an alarming rate, with growth figures for 2022 falling far below initial projections.

The outlook for 2023 is equally grim.

As a result, Treasury's revenue projections are in serious jeopardy and revenue shortfalls will potentially be financed by additional debt. The DA oppose this vehemently.

S&P stated they would raise the ratings if there is an improving track record of effective reforms, resulting in structural improvements in economic growth alongside a reduction in public debt and contingent liabilities.

In February, we presented the DA’s Alternative Budget for 2023 which provides a fiscal policy platform with quickly implementable solutions to establish resilience and stimulate economic growth to attract foreign capital, encourage domestic savings, revitalise state-owned entities, fix our crumbling infrastructure, enhance labour market participation, and facilitate the expansion of both the small and large business sectors.

With our economy already in dire straits, it is crystal clear that the ANC is not capable of turning things around. However, South Africans have a unique opportunity in 2024 to take matters into their own hands and vote for change.

A DA government will implement workable economic policies that will put our economy back on the path to growth and prosperity. In the meantime, we will continue to apply pressure on the government to take urgent action and implement policies that will benefit the country and all of its people, and not just selfish ANC interests.

Issued by Dion George, DA Shadow Minister of Finance, 9 March 2023