- Credit rating on review for downgrade to one level above junk
- `We have never broked a fiscal promise,' Gordhan says
South African Finance Minister Pravin Gordhan moved to reassure financial markets that the government is serious about meeting its fiscal goals after Moody’s Investors Service said it’s reviewing whether to cut the nation’s credit rating to one level above junk.
“We have a good story to tell, but clearly we need to prove to ourselves and to them that we’re capable of working together to grow the economy, create jobs and make our fiscal framework a viable one,” Gordhan said in an interview on Talk Radio 702 on Wednesday.
Moody’s said on Tuesday it’s putting South Africa’s Baa2 rating on review because of “continuing rise in risks to the country’s medium-term economic prospects and to its fiscal strength.” The company, which will send officials to South Africa next week, said it could cut the rating if it finds that government policy is unlikely to rein in debt, the economy faces more growth shocks or there are signs authorities aren’t committed to fiscal restraint.
A downgrade by Moody’s will move its rating to one level above junk and on par with that of Fitch Ratings Ltd. and Standard & Poor’s.
Gordhan gave a series of radio interviews on Wednesday to provide more information on meetings he is having with investors and rating companies in the U.K. and the U.S this week. Investors are seeking more stability in South Africa’s economic and political environment, and signs that growth will recover, he said.
Africa’s most-industrialized economy is at risk of losing its investment-grade status as growth is forecast to slow to less than 1 percent this year, knocked by the worst drought in more than a century, low commodity prices and weaker demand from its biggest export destination, China. Confidence also hasn’t recovered since President Jacob Zuma decided in December to install little-known lawmaker David van Rooyen as finance minister, causing the rand and bonds to plunge.
Zuma backtracked on his decision four days later after officials in his party and business leaders lobbied for him to rethink the move. He appointed Gordhan to the position he had held from 2009 to 2014.
Gordhan, 66, told Moody’s that “we have never broken a fiscal promise that we’ve made in our 20 years as a democracy,” he said on Johannesburg-based PowerFM radio from Boston. “They want to understand where growth in this economy is going to come from, and we’ve given them examples of what we are working on.”
In the Budget Review he tabled last month, Gordhan projected the fiscal shortfall will reach 3.9 percent of gross domestic product in the year ending March 31, and narrow to 2.4 percent in three years time. Gross debt will exceed 50 percent of GDP this year for the first time in at least 25 years.
Gordhan said Zuma is dealing with a breakdown in the relationship between himself and Tom Moyane, the tax commissioner. “All we want is decency” from an official who is the equivalent of a department director general, he said.
South Africa’s currency fell on Feb. 26 by the most against the dollar on a closing basis since 2011, as the Business Day newspaper reported that Gordhan had threatened to resign if Moyane isn’t dismissed and the minister later warned of a campaign to undermine him. The rand gained less than 0.1 percent to 15.4273 against the dollar as of 11:19 a.m. in Johannesburg on Wednesday.