* Finance ministry says economic reforms urgently needed
* Government may have to cut social spending, hike taxes
* Moody’s, Fitch downgraded country to further junk (Adds statement details)
By Promit Mukherjee
JOHANNESBURG, Nov 21 (Reuters) – South Africa’s finance ministry said on Saturday credit ratings downgrades by Moody’s and Fitch would increase the country’s borrowing costs and constrain its fiscal options.
“The decision by Fitch and Moody’s … is a painful one,” Tito Mboweni, minister of finance, said in a statement.
There is an urgent need for government to implement structural economic reforms to avoid further harm to the country’s sovereign rating, he said.
Credit rating agencies Fitch and Moody’s lowered South Africa’s sovereign ratings deeper into junk territory late on Friday on rising debt and a likely further weakening in its fiscal position. S&P Global affirmed its rating.
With the COVID-19 pandemic worsening, South Africa’s tax revenue is falling as the economy contracts, while spending to contain the spread of the virus and cushion its impact on the poor has increased.
At last month’s mid-term budget, the National Treasury forecast South Africa would record a budget deficit of over 15% of GDP in the fiscal year ending March 2021, the highest in post-apartheid history.
If the cost of borrowing for the government increases, it will either have to cut back on social spending or tax more, the National Treasury said, at a time when almost a third of the population is unemployed.
“Continuous rating downgrades will translate to unaffordable debt costs, deteriorating asset values (such as retirement, other savings and property) and reduction in disposable income for many,” it said, referring to the impact on South Africans. (Reporting by Promit Mukherjee; Editing by Andrew Heavens and Mark Potter)