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Moody’s reprieve 'not enough' for hard-pressed consumers

Mar 24 2018 12:31
Tehillah Niselow

Johannesburg – Although all South Africans will benefit from the Moody's move not to downgrade South Africa, it is not enough for hard-pressed consumers, warned debt counselling firm Debt Rescue.

The Banking Association of South Africa (BASA) on Saturday welcomed Moody’s affirmation of South Africa’s investment rating, saying that another downgrade would have increased the cost of borrowing for the state, companies and financial institutions.

On Friday night, the ratings agency affirmed South Africa’s long term foreign and local currency debt ratings at ‘Baa3’ and revised the outlook to stable from negative, citing changes in the political arena, the strengthening of key institutions, improved economic growth and commitment to fiscal consolidation as reasons for their decision.

"All South Africans – business and consumers – will benefit from this show of confidence in the progress the country has made in addressing some of the concerns previously raised by the rating agency, and in its economy that is beginning to show some growth," BASA said in a statement. 

Sanisha Packirisamy, an economist at Momentum Investments said in a research note that a downgrade to SA’s local currency rating to junk status by Moody’s would have triggered SA’s exclusion from the Citi World Government Bond Index which could have prompted "significant capital outflows" from the SA government bond market of between R85bn to R130bn. 

This is, however, only a slight reprieve for "hard-pressed" consumers who are facing the Value Added Tax (VAT) hike and a total 52c/l fuel and RAF levy increase on 1 April, warned Debt Rescue CEO Neil Roets on Saturday.

"Unfortunately we need much more than just this titbit of good news to make a real difference. Real economic growth – well beyond the 1.1% which is being predicted by the World Bank – is needed to significantly improve the lives of our people," he said.

Non-negligible risk of going backwards

Packirisamy cautioned that there were issues South Africa still needed to address before celebrating the Moody’s decision as there remained a "non-negligible risk of a change in Moody’s outlook from stable back to negative" when they review their rating in October.

She said investors would be seeking clarity on the adoption of land expropriation without compensation as a policy of the ruling party and would remain vigilant of signs that the rule of law had been reinstated in the country through the conviction of a number of individuals involved in high-profile corruption cases. 

Packirisamy said Momentum Investments did not expect any further negative action from the other ratings agencies in their next rating cycle. Standards & Poor’s (S&P) and Fitch both downgraded South Africa to sub-investment grade in 2017.

"A ratings outlook upgrade will remain dependent on S&P’s growth forecasts and progress on growth in GDP per capita trends."

Packirisamy, said that S&P was expected to review South Africa on May 25 2018, while Fitch did not announce its review schedule.

Window of opportunity

The CEO Initiative meanwhile said the Moody's move "offered the country a window of opportunity" to improve its credit rating through further structural reforms.

"The decision is largely attributed to the confidence-enhancing measures taken in key areas over the past three months, including a smooth presidential transition, the appointment of a new board for Eskom, and the presentation of a fiscally responsible Budget," said the co-convenor of the CEO Initiative Jabu Mabuza, who is also Eskom’s chairperson.

The CEO Initiative acknowledged that improving South Africa’s credit rating wasn’t an end in itself but an outcome of structural reforms "that will restore our country to faster, more sustainable and more inclusive economic growth".

South Africa’s top CEOs  said that they were "particularly encouraged" by recent actions taken in the establishment of the commission of inquiry into state capture and the review of the funding models for state-owned companies, announced in the February budget speech.

The CEO Initiative also hailed President Cyril Ramaphosa’s decision this week to place South African Revenue Service (SARS) commissioner Tom Moyane on suspension and replace him with tax veteran Mark Kingon in an acting capacity.

"South Africa should use this window of opportunity by responding appropriately to the significant challenges we face, in order to improve the lives of our citizens and inspire confidence in the future of our country," Mabuza said.

Ramaphosa, Finance Minister Nhlanhla Nene and the CEO initiative was set to launch the Youth Employment Services (YES) campaign next week. The YES campaign was aimed at giving internships and work experience to one million young people in the next three years, in a bid to alleviate the high youth unemployment rate of 51.1% in January, according to data from Statistics South Africa.

Investec CEO Stephen Koseff previously complained about the slow pace and government  bureaucracy in implementing the YES programme.

Cabinet last week approved the launch on Tuesday of the pilot at the Riversands Incubation Hub in Diepsloot, Johannesburg.

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