Chief Economist at Stanlib, Kevin Lings says government's debt levels are scheduled to rise significantly following a credit downgrade to junk status.
Ratings agency Standard & Poor’s Global dropped its rating for South Africa’s local currency to junk status at the weekend, joining agency Fitch with both its local and foreign currency ratings below sub-investment grade.
Lings spoke to Ray White on The Midday Report about activity around the rand and what government should have done to avoid the downgrade.
They adjusted their tax revenue over a period of three years down by a total of 206 billion - now that is massive in the South African context. What they should have done at the same time is announce an equivalent reduction in government expenditure.— Kevin Lings, Chief Economist at Stanlib
Had they done that, then obviously the budget numbers would have looked better and you would have been sending the message to say government is going to be disciplined in terms of how it is going to appropriate expenditure.— Kevin Lings, Chief Economist at Stanlib
But government did not do that and as a consequence, the debt levels then rose dramatically and are scheduled to rise substantially, he adds.
Clearly, the markets didn't take that well. It's going to take more than just a statement of intent, we are going to have to show a clear move towards fiscal reform and also initiatives to effectively show we are going to lift the growth rate in this country...right now its going to take quite an effort by government to avoid a downgrade by Moodys next year.— Kevin Lings, Chief Economist at Stanlib
Click on the link below to listen to Kevin Lings comments on what needs to happen going forward....