S&P leaves SA’s credit rating unchanged

28 May, 2021 - 00:05 0 Views
S&P leaves SA’s credit rating unchanged

eBusiness Weekly

‘We’ve been given breathing space…and I think it’s now very much in our hands to demonstrate that the commitments we’ve made to turn this economy around will begin to be realised’: Prof Raymond Parsons NWU Business School.

NOMPU SIZIBA: The Standard & Poor’s and Fitch ratings agencies both left their ratings positions on South Africa unchanged on Friday — both of whose ratings for South Africa are several notches down in junk status. The usual bugbears were flagged — those being the country’s structural constraints, the need to get on top of fiscal sustainability issues, and the relatively slow vaccination rollout.

They continued to see South Africa’s debt picture as a significant risk, and today Moody’s had its emerging markets conference. Earlier this month it decided not to provide a new rating position, postponing that until November.

Well, to unpack some of the issues for us I’m joined on the line by Professor Raymond Parsons. He’s the head of economic and management sciences at the North West University Business School. Thank you very much, professor, for joining us. S&P and Fitch left the ratings position unchanged, both being around three notches deep in junk territory.

But what were the key takeaways that you took from their commentary?

Prof RAYMOND PARSONS: Well, Nompu, I think there were three main takeaways from their decision that I noticed.

The first is there’s a positive message, which is confidence-building at the time when we do want a better economic mood in South Africa. And then secondly it does give South Africa more time to get its economic house in order in the forthcoming period.

Now, what the agencies are prepared to do is to allow time for certain factors to unfold — especially on the fiscal side — such as the public-sector wage bill and our infrastructural rollout. There was nonetheless serious concern expressed, as you indicated, by them about the significant risk to get stabilisation, and other implementation risks.

But they don’t see the South African economy as out of the woods yet. What’s important now is that, though they’ve  left things unchanged for now, their decision comes with strong health warnings in every sense of the word.

NOMPU SIZIBA: Do you think that we’re not going to be able to catch up fairly quickly on the vaccine rollout side of things because, by all accounts, it does seem as though the government and the private sector are working in unison to expedite the process.

Prof RAYMOND PARSONS: Well, Nompu, on the vaccination rollout I think that the jury is still out as to exactly where we are at this stage. All one can say is that with the third wave on our doorstep we must cooperate, all of us must cooperate, to make a success of the vaccination rollout because I see it very much as ‘weaponising’ with the vaccine in the next few months.

But it’s positive to see the extent to which the government and the private sector have been increasingly collaborating in order to manage…this whole pandemic and its consequences. And what I’m hoping is that it will lay the foundations for a more co-operative and trusting relationship between the government and the private sector on a number of other issues as we move ahead with our leaders to build a better economic future.

So I think what the credit rating agencies are also saying here is simply emphasising that a healthy economy and a healthy society are now inter-dependent. They are two sides of the same coin.

NOMPU SIZIBA: Absolutely. So economic growth is ultimately the key ingredient that the country needs to rectify — things like the high unemployment rate, other socioeconomic ills, and the debt picture. But, according to the Reserve Bank it seems that it’s only this year where we’re going to experience a spike in economic growth, 4.2 percent to be precise, owing to the low base effects of last year.

And then, worryingly, one of the ratings agencies — I think it’s Moody’s — is pegging average growth of 1 percent over the medium term. If that’s an accurate view, where to from here?

Prof RAYMOND PARSONS: Well, I think that’s an important  question, and I’m glad you’ve asked it, because we are likely to see about a 4 percent growth move down in our economy. This has been confirmed by Fitch as well, after our ‑7 percent growth last year as the result of the pandemic.

But to me all along now, it’s been the challenge of how we convert the cyclical rebound — because that’s what it is, just a rebound — into sustainable job-rich growth in the years ahead, because that means implementing the economic reforms we’ve promised with infrastructure, ensuring fiscal sustainability at various levels and, above all, keeping the lights on.

So I’m less excited by the rebound, but I’m concerned to ensure that we as a country now begin to put into place the foundations for jobs in the years ahead. And that’s also what the credit-rating agencies are saying. They are saying we need to invest in sustainable growth so that our growth figures look better in the years ahead, and not just this year.

NOMPU SIZIBA: Yes. We can’t afford a situation whereby come next year February the President is basically repeating a similar Sona to the one that he delivered this year.

Prof RAYMOND PARSONS: I think the important point here is we want to see outcomes, and I think government’s committed to that — (outcomes) that we need to see driven in a transparent and accountable way, that we have an economic reconstruction and recovery plan.

We need to see not a magic wand overnight. I think the agencies and many of us in the country say, let’s just see step-by-step progress that’s taking us in the right direction and reducing the uncertainty as to where we are at the moment.

NOMPU SIZIBA: I know for the longest time the markets were not very generous to Moody’s, feeling that they were a little bit weak or indecisive on making a call on South Africa for the longest time; and then suddenly they became quite firm around the rating of South Africa. But obviously they’ve given us a bit of a grace period yet again, and they’ll give us a verdict, so to speak, only come November.

So what do you think they’re going to do? Is it going to be more in alignment with the other rating agencies, or more nuanced?

Prof RAYMOND PARSONS: Well, I think, Nompu, each of the credit-rating agencies has its own methodology. I wouldn’t like to try and second-guess them at the moment. I would be surprised, though, if they were to make a statement at this stage, which they are obviously not going to.

But nonetheless I would be surprised if they arrive at a different decision to Standard & Poor’s and Fitch’s on the present evidence about the South African economy.

I think what’s important  now is that at least all of them have said we’ll come back in November to interrogate what economic progress you’ve made after six months, what outcomes are beginning to emerge that will perhaps cause us to still leave our particular rating.

It needs to be more ambitious and beginning to put in place (7:21). . .But nonetheless that will happen in six months’ time.

We’ve been given breathing space in our junk status for the moment.

And I think it’s now very much in our hands to begin to demonstrate that the commitments we’ve made to turn this economy around will now begin to be realised.

NOMPU SIZIBA: And then one last thing, prof, in terms of the third wave which basically seems to be more or less here, it will be important how government decides to deal with it such that the impact on the economy is not as severe as before.

Prof RAYMOND PARSONS: I think one of the advantages is that we’ve all been on a steep learning curve, including government and the private sector, in what we’ve experienced in the past 15 months.

So although we have the threat of a third wave, the full impact of which we haven’t seen yet, I feel we are better equipped.

I certainly hope we are better equipped to take the right decisions that will enable us to deal with whatever economic consequences might come, without the severe unintended consequences that we saw last year.

NOMPU SIZIBA: Professor Parsons, thank you very much for your time, as always. Professor Raymond Parsons, is the head of economic and management sciences at the North West University Business School.

Nompumelelo Siziba is a business news and television anchor and reporter. Moneyweb

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