SA ‘must not waste’ Moody’s reprieve

Agency credits Ramaphosa’s administration Departments must play role in lifting ratings

The Treasury will ask government departments to look at what each of them can do to lift SA’s credit ratings and take advantage of the opportunity Moody’s opened up when it surprised the market on Friday night by upgrading the outlook on SA’s rating to “stable” from “negative”.

The unexpected change in the outlook came as Moody’s kept its investment-grade rating on SA, crediting President Cyril Ramaphosa’s new administration for halting the erosion of institutions including the Treasury, South African Revenue Service and stateowned enterprises.

“The recovery of the country’s institutions will, if sustained, gradually support a corresponding recovery in its economy, along with a stabilisation of fiscal strength,” Moody’s sovereign analyst for SA Zuzana Brixiova said.

The agency warned that it could again put the ratings on negative watch — as it did after October’s disastrous mediumterm budget — if the government faltered in its commitment to revive economic growth and stabilise the public debt. However, it also listed what SA could do to put it on a path to being upgraded again.

Treasury director-general Dondo Mogajane said on Sunday that he would push hard for departments to unpack Moody’s list of items and see what each could do to make these happen.

“Now that we are on stable outlook we have a new lease of life and the opportunity to make a new set of commitments,” Mogajane said.

“I am going to push for people to say, ‘let’s implement what they [Moody’s] say we should to take us up in terms of the rating’, but also ask what we should stop doing that would take us down to negative again,” he said.

The message from Moody’s, he said, was that SA was starting to do the right things but must do more of them, without delay.

Mogajane pointed to the set of policy reforms that the Treasury had outlined in February’s Budget Review, in the areas of mining, telecommunications, anticompetitive practices and supporting labour-intensive sectors such as tourism and agriculture, as structural reform

measures that the Treasury had identified that could lift the growth rate to 3.5%.

Moody’s said the successful implementation of structural reforms to raise potential growth and stabilise and eventually reduce the public debt burden, including through reforms to state-owned enterprises to reduce contingent liabilities, would put “upward pressure on the rating”.

“In particular, reforms resulting in higher savings and investment rates and broadbased, sustainable, job-creating growth, alongside rebuilding of fiscal buffers, would provide positive momentum to the rating,” Brixiova said. She specifically mentioned resolving the structural issues relating to mining and agriculture.

The Moody’s decision has pulled SA back from the brink of being rated sub-investment grade, or junk status, by all three agencies, an outcome that would have seen SA’s local currency (rand-denominated) bonds ejected from the benchmark World Government Bond Index, potentially prompting estimated capital outflows of R80bn-R120bn as international funds tracking the index sold their bonds. The rand strengthened after the Moody’s announcement and was trading at R11.74/$ late on Sunday.

Business organisations welcomed the Moody’s decision, flagging the “window of opportunity” it provided for SA to address its inclusive growth challenges.

Business Unity SA (Busa) said Moody’s decision was a mark of greater confidence in SA and reflected the positive sentiment that had prevailed as a result of Ramaphosa’s election as president, along with the cabinet reshuffle.

“These changes have found resonance with Moody’s but will need to be followed by concrete actions to ensure accelerated and inclusive economic growth,” said Busa CEO Tanya Cohen.

Stanlib economist Kevin Lings said the overall tone of Moody’s assessment was certainly more positive than most analysts would have anticipated.

“The ratings agency tried its best to highlight as many positives as possible and while they flagged some of the risks, these did not dominate,” Lings said.

The rand had strengthened in response, increasing the prospect of a cut in interest rates, Lings said.