Let us stop mooching in ratings junkyard
One of the unintended achievements of the Zuma years is that they brought into the national consciousness the role of ratings agencies.
Before the various inexplicable cabinet reshuffles, most citizens had little awareness of ratings agencies. Since then, the role and methodology of the agencies have been called into question.
Given the hysteria of our national discourse on all matters where society, politics and economics intersect, the views have ranged from the informed to the ridiculous. Last week Moody’s Investors Service issued its latest ratings statement on SA, which resulted in us barely holding on to investment-grade status. In explaining its stance, Moody’s mentioned the various interventions that have occurred since the change of political leadership in the country.
These had the effect of persuading Moody’s that we are on a different path towards fiscal discipline and tightening the national purse strings. In addition, Moody’s mentioned the increase in value-added tax (VAT), which starts this weekend, as a positive sign. And therein lies the source of the tension between society and the economic elites.
SA’s biggest problem remains the inability to meaningfully tackle the problems of unemployment, inequality and poverty. For most citizens, such challenges are reflective of the daily reality that confronts them. In this case, the ordinary citizen’s view is that an increase in the VAT rate is not a good thing given its effect on the poor and working class.
Economic analysts and ratings agencies, on the other hand, would argue that the VAT increase is good for us all because of the long-term effects. Such an analysis is, however, too abstract for the man on the street, whose only understanding of the issue is the change in the exit price of the goods and services he acquires. It is therefore important to acknowledge that what ratings agencies perceive to be positive outcomes are sometimes seen in a different light by the rest of the citizens.
The fact that the government had to resort to the VAT hike just to balance the books indicates that all other options have been exhausted. The hard reality is that it is not yet clear whether the tax collections will indeed reach the desired levels to ensure we do not face another budget shortfall.
It would be useful for the state to challenge itself to ensure that all other instruments of generating revenue that were so effective before the Tom Moyane and Zuma years are somehow restored to their previous heights.
One way to push the state towards this position is to commit to reversing the VAT increase in the medium term. This would mean other revenue-generating instruments that are less regressive than the VAT hike are exploited and refined. Coupled with cutting out avoidable expenditures – bail-outs of South African Airways and Eskom — there is a possibility of balancing the national purse if we all work towards it.
As a country we seem happy to live on the brink of downgrades rather than committing to a desired investment-grade rating. For Africa’s most sophisticated economy to exist on the borderline of junk status is not acceptable. Continuous flirtations staying just above the line limit our ability to embark on a more ambitious path of actively pursuing an investment rating with which we are comfortable.
Rather than being contemptuous of ratings agencies, our national goal should gravitate towards ensuring our interactions with agencies are all about climbing up the ratings ladder rather than praying to be given yet another lifeline whenever they pay us a visit. Remarkably, the National Development Plan doesn’t have much to say about this.