WHAT THE EXPERTS SAY...
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. –