COST OF RAT­INGS

In­ter­view with Min­is­ter Malusi Gi­gaba on the im­pact of the credit rat­ings

The Star Early Edition - - BUSINESS REPORT - Adri Senekal de Wet

Re­port: Ex­ec­u­tive Editor Adri Senekal de Wet (AW). In­ter­view with Fi­nance Min­is­ter Malusi Gi­gaba (MG) on the cost of rat­ing agen­cies. AW: Do we pay all the rat­ing agen­cies to be rated? If so, can you in­di­cate the amount? What did the gov­ern­ment (Trea­sury) pay S&P’s Global Rat­ings, Moody’s and Fitch over the past five years? MG: The gov­ern­ment of South Africa pays rat­ing ser­vices fees in or­der to be rated. In this re­gard, the rat­ing ser­vices fees are paid to Moody’s In­vestors Ser­vice, S&P’s Global Rat­ings, Fitch Rat­ings and Ja­panese Rat­ings and In­vest­ment In­for­ma­tion. AW: What did the gov­ern­ment (Trea­sury) pay S&P’s, Moody’s, Fitch over the past five years? MG: We are still con­sult­ing Na­tional Trea­sury’s le­gal de­part­ment on whether or not rat­ing ser­vices fees in­for­ma­tion can be dis­closed to third par­ties. AW: Please share your views on the im­pact of “coun­try and com­pany rat­ings” on the South African econ­omy. MG: The im­pact of coun­try and com­pany rat­ings on the econ­omy of South Africa will trans­late to:

Higher bor­row­ing costs for the gov­ern­ment and state-owned com­pa­nies (SOCs) – In­vestors would re­act to the news of ad­verse rat­ing ac­tions by charg­ing high risk pre­mi­ums on bor­row­ings of gov­ern­ment and SOCs. As a re­sult, more money will be di­rected to­wards debt ser­vic­ing and less on in­fra­struc­ture spend­ing. The im­pact will also re­duce the fi­nan­cial flex­i­bil­ity and abil­ity of SOCs to honour ex­ist­ing debts and as a re­sult, these debts could mi­grate to the bal­ance sheet of the sov­er­eign.

The gov­ern­ment’s bud­get will be di­rected less to­wards core spend­ing (in­fra­struc­ture, health, ed­u­ca­tion, hous­ing, so­cial se­cu­rity ser­vices, for ex­am­ple) and more on debt ser­vice costs.

Re­duced de­mand for South African stocks and long-term in­vest­ments (bonds, eq­ui­ties and for­eign di­rect in­vest­ments) as risk per­cep­tion height­ens.

A weak­ened rand, which will in­crease the price of im­ported goods and ser­vices, thus re­sult­ing in high in­fla­tion and ris­ing food and petrol prices.

So­ci­ety’s dis­pos­able in­comes will be less flex­i­ble and less money will be able to pay for ne­ces­si­ties such as gro­ceries, trans­port, school fees, etc. AW: Are you aware of the var­i­ous law cases against S&P’s, even in the US? MG: We are aware of the law­suit that is in the pub­lic do­main tied to the 2008/09 global eco­nomic cri­sis. The US gov­ern­ment brought a case against S&P’s in 2013, ar­gu­ing that the rat­ing agency de­frauded in­vestors. In 2015, S&P’s was fined $1.5 bil­lion (R19.15bn). So far, South Africa has not in­sti­tuted any lit­i­ga­tion against rat­ing agen­cies. AW: When can we ex­pect the Brics Rat­ing Agency to be launched? What will your role be? MG: The po­lit­i­cal lead­er­ship is still en­gag­ing on the mat­ter and as such we can­not com­ment at this stage. AW: With ref­er­ence to the Na­tional De­vel­op­ment Plan (NDP), what is the im­pact of South Africa’s rat­ing as a coun­try on the suc­cess­ful im­ple­men­ta­tion of the NDP? MG: The rat­ing agen­cies have ex­plic­itly cited that suc­cess­ful im­ple­men­ta­tion of the NDP is crit­i­cal for South Africa to ad­dress low eco­nomic growth and chal­lenges of un­em­ploy­ment, poverty, in­come in­equal­ity and skill short­ages. Among other fac­tors, demon­strat­ing con­crete ef­forts in im­ple­ment­ing the an­nounced eco­nomic growth re­forms and the 9 Point Plan; which talks to the mile­stones of the NDP; aimed at ad­dress­ing the struc­tural bot­tle­necks and im­prov­ing the growth out­look will trans­late to favourable rat­ing out­comes ac­cord­ing to rat­ing agen­cies.

PHOTO: BONGANI SHILUBANE

Min­is­ter of Fi­nance Malusi Gi­gaba answers ques­tions put to him by Busi­ness Re­port’s Ex­ec­u­tive Editor Adri Senekal de Wet.

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