CLAIRE BISSEKER: It’s way past midnight for the SA project

Not since 1994 have SA’s local currency ratings been this low. The fact that the ratings agencies have kept SA on a negative outlook suggests the country may be in the dark a while yet ...

23 November 2020 - 06:00
President Cyril Ramaphosa speaks during his third investment conference on November 18 2020. Picture: BLOOBERG/WALDO SWIEGERS
President Cyril Ramaphosa speaks during his third investment conference on November 18 2020. Picture: BLOOBERG/WALDO SWIEGERS

The snotklap SA received from the ratings agencies over the weekend is exactly the wakeup call the country needs. Not that the man in the street needs any reminder of how tough things are. But pampered politicians and public servants enjoying sheltered employment at taxpayers’ expense clearly need reminding that the party is over.

The move by Moody’s and Fitch to downgrade SA even deeper into junk territory just six months after their previous downgrades is bad enough, but even more shocking is their decision to retain SA on a “negative” outlook, as it means they have little faith in the country’s ability to turn itself around.

Put simply, they don’t believe that enough structural and fiscal reform will occur to raise SA’s growth rate sufficiently over the next few years to stabilise its galloping debt trajectory inside of 100%. Given slow growth and high borrowing costs, the rise in the debt burden is becoming increasingly difficult to slow down, let alone reverse.

The latest ratings action means SA is now ranked two notches into junk territory with Moody’s, and three notches down with Fitch, which lowered its rating to “BB-” in line with S&P Global Ratings. At the same time, S&P affirmed SA’s “BB-” rating and maintained its “stable” outlook.

This means SA is now on the cusp of the “highly speculative” category of single “B” countries (which includes the likes of Bosnia, Iraq and Ghana and Turkey) with two out of the three agencies.

Not since 1994 have SA’s local currency ratings been this low. All the progress achieved over the past 25 years – during which SA’s ratings peaked in 2006 at A+ with S&P – has now been wiped out.

When S&P and Fitch first junked SA’s ratings in 2017 (in response to then president Jacob Zuma’s axing of finance minister Pravin Gordhan), few would have believed that within three years both agencies would mark SA down three notches into junk territory – and this despite the unseating of Zuma and the unravelling of the state capture project.

The key driver of these successive downgrades has been SA’s profoundly deteriorating growth and fiscal story. The country has just completed its worst growth decade on record – averaging just 1.35% since 2009. This has been mirrored by a steady rise in public debt, from 26% of GDP in 2009 to the National Treasury’s latest estimate of 81% for 2020/2021.

Before the virus struck, the debt estimate for this year was 65% – a terrifying escalation.

And though the coronavirus is mostly to blame for the recent collapse, the deterioration in SA’s economic and fiscal strength over the past decade is not the result of external shocks but the government’s failure to change its approach to managing the economy.

If there was real haste on spectrum and energy reform, or the state finally pulled the plug on SAA, it would signal that the government appreciates the scale of the problem and is prepared to do things differently. But there is no evidence that the looming fiscal crisis is causing a fundamental rethink or a change in the “soul” of government – or of its trade union allies, who have taken the call for a wage freeze as a call to war.

Ratings agencies aren’t the only ones to have noticed that the government’s reliance on structural reform and public sector wage restraint to stabilise the situation carries huge implementation risks, given SA’s poor record of enacting policy and the political contestation it is set to provoke. Investors are skittish too.

In short, despite President Cyril Ramaphosa’s freshly minted economic recovery plan, the agencies are signalling that they have little faith in government’s ability to implement the reforms needed to halt the country’s downward slide. Instead, they are warning that SA has further to sink.

It may not be entirely too late to prevent this, but it will require a ruthless decisiveness not yet seen from this administration.

*Bisseker is the economics writer for the FM

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