Moody's downgrading of South Africa to junk status could not have come at a worse time, but it was to be expected due to the ANC government's mismanagement of the fiscus and the lack of fiscal discipline underlying its destructive economic policy.
The government allowed public enterprises to be driven to the very verge of bankruptcy by corruption, mismanagement and looting, especially in the time of state capture. That was the main reason for Moody's decision. Moody's also named the country’s interrupted power supply and the fact that it will take years to restore Eskom's functioning as one of the pertinent reasons for the downgrade.
The decision was not made due to the current situation in South Africa brought about by the coronavirus, which is having a negative effect on the global economy.
The budget announced in February by the Minister of Finance, Titi Mboweni, cannot realise seeing as it was based on assumptions and projections that were made before the effect of the coronavirus and Moody's downgrade were taken into account.
Thus, a new budget will have to be tabled as soon as possible after the present lockdown.
Moody's pointed out that the necessary structural reform for economic growth is not taking place. It includes steps to limit government debt. The current estimate is that the country's government debt will comprise 91% of the Gross Domestic Product (GDP) by 2023.
That is out of control and unsustainable and with the recent downgrade, it will become even more difficult to finance debt because interest rates will be less favourable. It creates one crisis on top of another.
The FF Plus has been saying for years that an emergency reserve fund is needed. And now this has proven to be true seeing as the country does not have the funds to serve as buffer for the coronavirus crisis and so the fiscus will be milked dry.
Under the current circumstances, the economy does not stand a chance to grow. The country already finds itself in a technical recession with rising unemployment and the downgrade coupled with the effect of the coronavirus crisis do not bode well for the future.
It is, therefore, absolutely imperative to make drastic changes to improve fiscal policy and discipline. Structural reform is crucial for the transformation of public enterprises so that they are no longer a burden for the state.
The FF Plus still believes that public enterprises should have been privatised years ago. It must happen now.
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