Mboweni: Junk status downgrade 'could not have come at a worse time'

Mboweni: Junk status downgrade 'could not have come at a worse time'

- Tito Mboweni is very concerned about what the rating downgrade will mean for South Africa

- Moody's downgrade is expected to have a severely negative effect on the economy

- The country faces many challenges at the moment and Mboweni said that downgrade could not have come at a 'worse time'

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South African Finance Minister Tito Mboweni has spoken out about Moody's downgrade of South Africa's sovereign credit rating to junk status.

Moody's is the last of the big three agencies to downgrade SA to junk status. S&P and Fitch had already downgraded South Africa in 2017.

Briefly.co.za learned that Moody's has revealed that weak growth and degradation in fiscal strength were reasons for the rating agency to cut South Africa's credit rating.

Treasury had the following to say about the rating cut.

“The decision by Moody’s could not have come at a worse time,” said Treasury. “South Africa, like many other countries, is seized with containing the outbreak of the coronavirus. The impact of Covid-19 is felt across various sectors of the economy including the financial markets which experienced a significant sell-off in equities, bonds and exchange rates as investors retreated to safe haven securities amid the uncertainty.
“The sovereign downgrade will further add to the prevailing financial market stress. These two events will truly test South African financial markets. South Africa’s deep, stable financial sector and robust macroeconomic policy framework have always been flagged as a credit strength, including the South African Reserve Bank’s demonstration of a good track record in implementing credible and effective monetary policy and preserving financial stability.
“The sovereign downgrade will further see South Africa being excluded from the FTSE World Government Bond Index (WGBI) and the government bond market will experience further capital outflows as fund managers with investment grade mandates will be forced to sell South African government bonds. Non-residents currently hold approximately 37% (R800 billion) of the total domestic government bonds and the number is expected to substantially decline with the combined impact of Covid-19 and the downgrade. The interest rate for government, households and the broader economy is also expected to increase as a result. While some market participants argue that the impact of a sovereign downgrade has already been priced in, it is difficult to stipulate with certainty the extent.”

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Mboweni is very worried about what this will mean to South Africa in the days to come according to the Citizen.

Finance Minister Tito Mboweni said: “To say we are not concerned and trembling in our boots about what might be in the coming weeks and months is an understatement.”
Mboweni added: “It is with a heavy heart to note that all three major credit ratings agencies currently rate South Africa at sub-investment grade. However, every crisis presents an opportunity. The opportunity we have today is to unite and work together to address our challenges. We as a people have overcome insurmountable challenges in the past and we can still overcome. We shall rise. We have to rise. We owe it to ourselves.”

Social media users had further insight to offer on what the downgrade will mean.

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Source: Briefly.co.za

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