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Cape Town - Credit ratings agencies, such as Fitch, Standard & Poor’s (S&P) and Moody’s, are not unreasonable in the expectations they set for South Africa, said Dennis Dykes, Nedbank Group chief economist.
Dykes was a member of a panel discussion on business and the economy at an event hosted by the Western Cape Business Opportunities Forum (Wecbof) in Cape Town, on Wednesday night. His utterances with respect to ratings agencies were in reaction to a comment from Dr Cas Coovadia, MD of the Banking Association of South Africa who, during his keynote address, said South Africa shouldn’t be so fixated on ratings reviews.
READ: Stop fretting about ratings agencies, Coovadia urges SA
In June this year, South Africa managed to avoid a ratings downgrade to junk status when S&P and later Fitch retained South Africa’s current credit ratings as negative, albeit on a notch above junk, and stable, respectively.
Dykes reflected on Moody’s comments in 2012 when South Africa had been an A-rated country at the time. “Moody’s cautioned then that there were warning signs, asking if government was able to deliver cohesive economic growth. In 2012 already they felt that the institutional capacity to deliver services had been compromised under the Zuma administration,” Dykes said.
In addition, Moody’s was concerned about South Africa’s debt to GDP ratio which was 25% in 2012 and has since climbed to close to 50%.
“Moody’s also noted that our investment environment was deteriorating and appealed that we got back on the growth path as had been set out in the National Development Plan (NDP). They basically said: ‘You have this plan – now implement it’,” Dykes said.
During question time a member of the audience lamented the volatility of the rand and asked if going back to a two-currency system of a commercial and a financial rand wouldn’t serve the country better.
In the 1980s and 1990s South Africa used the financial rand as a parallel currency to the commercial rand. The financial rand stood at a discount to the commercial rand. It was abolished in 1995.
Dykes said although he understood that rand volatility created uncertainty for exporters and importers alike, bringing back the financial rand would be a “move backwards into the murky past”.
“Although it may sound good in theory it would be viewed negatively by the investment community. South Africa should rather try to reduce the volatility that we’ve induced ourselves,” he said with reference to the firing of former finance minister Nhlanhla Nene in December last year.
At the time the rand nosedived and crashed through the R15 to the dollar level.
READ: Nene removal 'sends the wrong signal' to investors - analyst
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