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Gigaba in last-ditch bid to sway Moody's on downgrade call

Apr 19 2017 11:38
Lameez Omarjee

Pretoria – Finance Minister Malusi Gigaba will meet with Moody’s on his trip to the US this week, in a last-ditch attempt to prevent a downgrade by the ratings agency.

Gigaba spoke to media about his trip to the US at Treasury on Wednesday. He will be attending the International Monetary Fund/World Bank Spring Meeting. The purpose of this is to discuss global economic trends, and Gigaba will meet with leaders and finance ministers from various countries. He will also discuss South Africa's role as a gateway to attract investment for the rest of the continent.

He added that the trip will include a “small-scale” meeting with investors and not a full-blown roadshow, but government decided not to waste the opportunity to engage with investors and to reassure them. Gigaba said he would also give Moody’s the assurance that government's policy direction has not changed.

“Moody’s have not yet downgraded us and have given us a 90-day review,” said Gigaba. “We must engage with them and have a face-to-face discussion with them to try and assure them of the policy direction of government.”

Moody’s has South Africa ranked two notches above junk status at Baa2, with a negative outlook. Gigaba explained there is no guarantee that the ratings agency won't downgrade the country, but that government would do its part in engaging with them.

“We are quite confident that the South African economy is resilient enough and robust, we are going to climb back to investment grade,” he said. The setbacks suffered are only temporary, and the country’s institutions are strong, said Gigaba. 

The finance minister admitted that the Cabinet reshuffle had left investors and ratings agencies concerned, and that during the trip he would be “talking up” the country to ensure continued confidence.

He intends to raise the programme for structural reforms - such as the nine-point plan and other aspects such as industrialisation, beneficiation programmes, and programmes to develop rural and township economies - with Moody’s. 

Other points to be raised include South Africa’s R1trn infrastructure build programme, as well as the stabilised energy situation. He added that he would be boasting about tax revenue collection of R1.14trn, as this says the country is able to fund the budget. He will further express commitment to fiscal discipline.

READ: SARS collects revenue of over R1.14trn

“We will highlight the challenges we are facing of unemployment and inequality, marginalisation of sectors which needs to be reversed through deliberate state and private sector interventions,” he said.

He explained the importance of collaboration between the public and private sector to fund the infrastructure build programme. The health of state-owned enterprises’ balance sheets has a bearing on this, and he has tasked Treasury with putting together a plan for collaboration on the matter while he is away

READ: Gigaba heads to US without Team SA

Gigaba will also indicate the intention to appoint a new director general by the end of May. “Treasury has had competent and well-renowned and well-liked directors general like Maria Ramos, Lesetja Kganyago and now Lungisa Fuzile.”

He explained that he is not hasty in choosing someone from within Treasury, as that might exclude external candidates who are equally competent, such as CEOs of banks who would be willing to forgo their “big salary” to work at Treasury.

The Federation of Unions of South Africa previously told Fin24 that labour and business were not invited to accompany Treasury, as was done in the past when Pravin Gordhan was finance minister.

Gigaba explained that this is partially because the trip is not an international investor roadshow, and an extensive one is planned to take place later. He also said the practice of inviting business and labour to accompany the minister is recent, and that he has no intention to stop it.

Gigaba said various organisations, trade unions and business leaders have declared their intention to be part of future investor road shows. “All the CEOs of banks declared their intention to be part of it; they will drop everything to be part.”

He said there was an “outflow of goodwill” towards engaging with international investors and ratings agencies.

“The SA Inc approach to engage international investors and ratings agencies has proven to be popular and very productive and beneficial for the country.

Read Fin24's top stories trending on Twitter:

malusi gigaba  |  downgrade  |  sa economy  |  junk status

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