South Africa will use its annual budget next year to outline "decisive" policy to strengthen its fiscal framework, the finance ministry said on Saturday after S&P Global Ratings cut its local currency debt to "junk" status.
S&P announced the downgrade on Friday, citing a further deterioration in the country's economic outlook and public finances. Moody's, meanwhile, placed South Africa on review for a downgrade.
"The 2018 Budget will outline decisive and specific policy measures to strengthen the fiscal framework," the finance ministry said in a statement, without giving more detail.
The downgrade by S&P comes after Finance Minister Malusi Gigaba shocked markets on Oct. 25 by flagging sharply weaker growth expectations, a wider budget deficit and rising government debt.
The government has since appointed a judicial commission of inquiry into the causes of a 50 billion rand ($3.6 billion) revenue shortfall and to investigate a possible erosion into the nation's revenue collection capability.
Economic growth has slowed to near zero in recent years and business and consumer sentiment have plumbed multi-decade lows as political uncertainty weighs on the economy.
Infighting within the ruling African National Congress ahead of a conference in December to elect a successor to President Jacob Zuma as party chief has also sapped investor confidence.
"Restoring business and consumer confidence, and catalyzing inclusive growth is the top priority of government," the finance ministry said.
South African businesses have been in talks with government more than a year to try to avoid credit ratings downgrades, but when Zuma in March replaced finance minister Pravin Gordhan with Gigaba, S&P and Fitch cut its ratings a notch within a week.
Nedbank, one of the nation's largest lenders, on Saturday warned that the latest move by S&P will make it more expensive for government and the private sector to raise funding.
"The February budget statement is South Africa's last chance to demonstrate the structural reforms and fiscal consolidation that are required to improve economic growth prospects and prevent Moody's from also downgrading the local currency debt to below investment grade," Chief Executive Mike Brown said.
A Moody's downgrade would trigger the exit of South Africa's local currency debt from important global bond indices, Brown added.