Mar­ket jit­ters af­ter Gi­gaba talks

Weekend Argus (Sunday Edition) - - SPORT - Siseko Njobeni

FINANCE Min­is­ter Malusi Gi­gaba’s maiden Medium Term Bud­get Pol­icy State­ment (MTBPS) fell short of ex­pec­ta­tions with a glar­ing lack of so­lu­tions to the coun­try’s fis­cal prob­lems.

In­stead, his MTBPS sent jit­ters into the mar­ket and height­ened chances of rat­ings down­grades.

Gi­gaba branded his speech can­did and frank. Yet he chose to walk on eggshells where it mat­tered most.

It is, how­ever, dif­fi­cult to over­look the con­text in which Gi­gaba de­liv­ered the speech.

He had the mis­for­tune of de­liv­er­ing prob­a­bly the most dif­fi­cult MTBPS less than two months be­fore the po­ten­tially di­vi­sive ANC na­tional con­fer­ence in De­cem­ber.

He was there­fore un­likely to go out on a limb and pull a rab­bit out of his hat. In­stead of pro­vid­ing clar­ity, the MTBPS raised more ques­tions than an­swers.

Take the sale of the gov­ern­ment’s 39 per­cent stake at Telkom, for in­stance.

The coun­try now knows that the sale is def­i­nitely on the table. But no one knows how much the gov­ern­ment is will­ing to sell and whether it has iden­ti­fied a ve­hi­cle where the shares will be kept as Gi­gaba said the state would buy them later.

Would they be “parked” at the Pub­lic In­vest­ment Cor­po­ra­tion (PIC)?

To his credit, Gi­gaba was brave enough to face the na­tion and de­liver the bad news that the reser­voir is empty. He had no choice.

But what he lacked were clear com­mit­ments. He was any­thing but per­sua­sive.

“It is not in the pub­lic in­ter­est, nor is it in the in­ter­est of gov­ern­ment, to sugar-coat the state of our econ­omy and the chal­lenges we are fac­ing.

“It is only when we un­der­stand th­ese chal­lenges fully and can­didly that we will know what to do and can de­cide what course we must take in ad­dress­ing them, as well as what trade-offs we must make in the na­tional in­ter­est,” he said.

For him, it was about lay­ing bare the known. His at­ti­tude was: “You do not like what you see, too bad.”

But the mar­ket was not for­giv­ing. In­stead of in­still­ing con­fi­dence, the state­ment un­set­tled the mar­ket and the rand tanked, re­main­ing un­der pres­sure well into the end of the week.

Re­mem­ber, S&P Global and Moody’s In­vestors Ser­vice are due to review South Africa’s credit rating next month.

Econ­o­mists think that a down­grade is loom­ing. “Moody’s and S&P’s neg­a­tive out­looks sig­nal that the next rating move will be a down­grade.

“We ex­pect to get Ba1 for South Africa’s long-term lo­cal and for­eign cur­rency sovereign debt Moody’s rat­ings (cur­rently Baa3). We ex­pect a down­grade to BB+ for South Africa’s long-term lo­cal cur­rency sovereign debt S&P rating, and the risk of BB for South Africa’s long-term for­eign cur­rency sovereign debt S&P rating (cur­rently BB+),” said In­vestec chief economist Annabel Bishop.

In its last review, S&P’s had warned that it would con­sider low­er­ing South Africa’s rat­ings if fis­cal and macroe­co­nomic per­for­mance de­te­ri­o­rated sub­stan­tially.

“While the agen­cies are set to review South Africa’s credit rat­ings in the last week of Novem­ber, the agen­cies can move be­fore then on the rat­ings, or may wait un­til the end of the year, or early next year, to de­liver a down­grade, given the neg­a­tive out­looks and con­comi­tant warn­ings,” said Bishop.

How­ever, she said the tim­ing of a down­grade was “less cer­tain”.

With the ANC elec­tive con­fer­ence in De­cem­ber, the agen­cies might wait for the out­come of the con­fer­ence be­fore down­grad­ing the coun­try’s rating.

On Thurs­day, Fitch said the MTBPS was an in­di­ca­tion of a change in direc­tion of pol­icy away from a fo­cus on fis­cal con­sol­i­da­tion, as it had an­tic­i­pated as a con­se­quence of March’s cab­i­net reshuf­fle.

“It’s oc­cur­ring faster than we’d ex­pected.”

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