President Jacob Zuma called for concrete measures to boost growth after S&P Global Ratings downgraded the local currency debt to sub-investment grade, while foreign currency debt was pushed deeper into "junk" territory, Reuters reported.
The rand recovered on Monday from steep falls suffered late on Friday after the downgrade, taking some relief from Moody's decision to only place South Africa on review for downgrade.
A cut to "junk" on the local currency debt by both S&P and Moody's could have seen South African debt lose its place in Citi's World Government Bond Index (WGBI), the biggest of the global benchmarks and tracked by about $2-3 trillion of funds.
Zuma directed Finance Minister Malusi Gigaba on Monday to finalise proposals for expenditure cuts amounting to 25 billion rand ($2 billion) and revenue boosting measures totaling 15 billion rand -- including through taxes.
A proposal by a presidential commission to introduce free higher education should also be implemented in a "fiscally-sustainable manner", the statement from Zuma's office said.
Fin24 reported that Zuma will meet with the Presidential Fiscal Committee this week to receive a progress report on plans to cut government spending by R25 billion and raise taxes by up to R15 billion.
In a statement on Monday, the president said he directed Gigaba and the Presidential Fiscal Committee to identify concrete measures to urgently address the challenges identified in the mini budget in October.
"The president as well as Cabinet have reaffirmed government's commitment to maintain a sustainable fiscal framework and to ensure that a solution is found to address the roughly R40bn gap that has been identified, through a combination of expenditure reductions and revenue-enhancing measures," the Presidency said in a statement.
Zuma directed that technical discussions would focus on four areas, which would then form the basis of the 2018 budget. These include spending cuts amounting to about R25 billion and revenue-enhancing measures amounting to about R15 billion, including where appropriate, tax measures, and to develop a phased-implementation plan to enable the proposal for fee-free higher education for students from poor and working-class backgrounds.
Gigaba in October unveiled a gloomy outlook for the economy as he flagged weaker growth expectations, wider budget deficit estimates and rising government debt.
Both S&P and Moody's cited deterioration in South Africa's economic growth prospects and public finances.
As of 1032 GMT, the rand was trading at 13.7450 per dollar, 2.98 percent firmer than its New York close on Friday, when it had tumbled 2 percent following S&P's announcement.
"The market is finding some relief in the fact that Moody's has chosen to give us basically till February before they change our rating, if they do change our rating," said Shaun Murison, currency strategist at IG Markets.
In fixed income, the yield for the benchmark government bond was down 10 basis points to 9.235 percent, also recovering after rising as much as 11 basis points earlier in the session.
Moody's said the review will allow it to assess the South African authorities' willingness and ability to respond to the rising pressures through growth-supportive fiscal adjustments that raise revenues and contain expenditures.
"The review period may not conclude until the size and the composition of the 2018 budget is known next February," Moody's senior analyst for South Africa, Zuzana Brixiova, said in a statement.
Moody's rates South Africa's foreign and local currency debt on their lowest investment grade rung of Baa3.