WHAT THE EX­PERTS SAY...

CityPress - - Business - Xolani Mban­jwa

Saki Ma­co­zoma Busi­ness Lead­er­ship SA pres­i­dent

There are a cou­ple of things that could be done to re­turn to a pos­i­tive credit rat­ing if the coun­try falls into junk.

“A fis­cal cliff would oc­cur if we reached a point where we can no longer ser­vice our debts and have to seek a bailout from in­ter­na­tional lenders. The best re­me­dial ac­tion that would see us avoid such a catas­tro­phe is a dras­tic cut in govern­ment ex­pen­di­ture. This is the painful path South Africa must em­brace,” said Ma­co­zoma.

South Africa should avoid junk sta­tus, he added.

“If the coun­try con­tin­ues to bor­row at higher in­ter­est rates, it risks get­ting into a sit­u­a­tion in which it can no longer af­ford to make re­pay­ments and then has two choices – it can de­fault on its debts or seek a res­cue pack­age from the World Bank and In­ter­na­tional Mon­e­tary Fund, and oth­ers. Such a res­cue pack­age of­ten comes with a painful struc­tural ad­just­ment pro­gramme.

“This is the sit­u­a­tion we are see­ing un­fold in Greece and other coun­tries in south­ern Europe. Many coun­tries in Africa have gone through this phase in the past,” said Ma­co­zoma.

Khany­isile Kweyama Busi­ness Unity SA CEO

Adowngrade would have se­vere con­se­quences for govern­ment, busi­ness and or­di­nary cit­i­zens.

Kweyama said the im­pli­ca­tions would be wide-rang­ing and far more se­vere than many ap­pre­ci­ated. Govern­ment’s pro-poor so­cial spend­ing would also be af­fected, as far more of the an­nual bud­get would go to­wards in­ter­est re­pay­ments rather than hu­man and in­fra­struc­ture in­vest­ments.

“While there is no quick fix to avoid­ing a rat­ings down­grade in the short term, govern­ment needs to demon­strate a firm com­mit­ment to do­ing what is nec­es­sary to pro­mote eco­nomic growth in the up­com­ing state of the na­tion ad­dress, and an equally firm com­mit­ment to fis­cal dis­ci­pline in the bud­get later this month,” ad­vised Kweyama.

“Over the longer term, we be­lieve a mix of the cor­rect poli­cies can put South Africa on the right path.”

Kristin Lin­dow Se­nior vice-pres­i­dent at Moody’s In­vestors Ser­vice

South Africa’s credit rat­ings could be re­vised up­wards if govern­ment was able to con­tain spend­ing de­spite the pres­sure to spend more on in­fra­struc­ture and so­cial ser­vices, said Lin­dow.

“The rat­ing could be up­graded if planned struc­tural re­forms, such as those em­bod­ied in the Na­tional De­vel­op­ment Plan [NDP], were im­ple­mented and were suc­cess­ful in rais­ing the econ­omy’s po­ten­tial growth rate, thereby re­duc­ing both its ex­po­sure to ex­ter­nal shocks and its stub­bornly high un­em­ploy­ment rate,” said Lin­dow.

“Over the longer term, re­forms re­sult­ing in higher do­mes­tic sav­ings, in­vest­ment rates and sus­tain­able stronger growth, along­side con­tin­ued re­straint in pub­lic debt ac­cu­mu­la­tion and the on­go­ing im­ple­men­ta­tion of the macro- and mi­cro-level re­forms em­bed­ded in the NDP would also be credit pos­i­tive,” said Lin­dow.

If South Africa made any de­ci­sions that could lead to a higher-than-ex­pected rise in the govern­ment’s debt bur­den, a down­grade was al­most a cer­tainty. –

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