Moody’s UK shift shows our need for speed
Moody’s Investors Service has been at it again. Last week it lowered the country’s credit outlook, blaming “political paralysis”, which has made it harder to predict policymaking.
The country in focus isn’t SA, though it might as well be. The report was on the UK and focused on its struggle to manage its exit from the EU more than three years after the Brexit referendum of 2016.
That the exit, if it happens, has been more complicated than anyone imagined it could be is not a big shock. It has served as a cautionary tale of what happens when populism replaces a research and evidence-based approach to policymaking.
It is seemingly so complicated that even the people charged with managing it are struggling to make sense of it. The Guardian reported at the weekend that the latest controversy is over whether
Prime Minister Boris Johnson had a full grasp of the deal he negotiated with the EU but failed to get passed in parliament.
It was to do with the question of what happens with Northern Ireland and the need to avoid having a border between that part of the UK and the republic to the south, which might threaten the peace agreement negotiated by former prime minister Tony Blair.
One of the most complicated questions, dismissed by proponents of Brexit, is how to manage the exit from the EU while avoiding a hard border, which could have implications for the integrity of the UK. Northern Ireland and the republic are part of the same customs union, so goods and people can move freely without the need for checks.
The possibility of the north and south of Ireland being in separate customs unions, and therefore necessitating customs clearance of goods that cross the Irish Sea, was the issue that did in the former prime minister, Theresa May.
Detractors in her own party couldn’t accept the backstop she negotiated, as it would keep the UK in the customs union with the EU, which could turn into a permanent arrangement if the subsequent trade negotiations could not find a solution to the conundrum.
Obsessed with the thought of never having the ability to sign their own trade agreements, they attacked this as a sell-out deal that would mean the UK left the EU only in name. So they voted against the deal and she had to step down.
Once Johnson got into power he ended up agreeing a new deal that on the face of it was great for Northern Ireland. It was rather similar to what the EU had initially proposed and was deemed unacceptable by the UK, which was that if the two parties couldn’t agree to a comprehensive trade deal that made customs checks unnecessary, Northern Ireland would remain part of the EU single market and the customs union.
It was deemed unacceptable because it would mean the north of Ireland would be treated differently from the rest of the country. Even for a layperson it was clear that the logical conclusion to this would be Ireland’s reunification.
It also threatened the UK in other ways. Scotland voted overwhelmingly to stay in the EU, and it’s hard to see it not demanding the same arrangement or full-on independence.
Johnson signed up to this, ironically bestowing on Ireland the benefits the rest of the country will be losing. “Actually, Northern Ireland has got a great deal. You keep free movement, you keep access to the single market and, as it says in the deal, unfettered access to the UK,” he was quoted as saying by the Guardian. The downside is that there will probably have to be customs checks on goods moving between Northern Ireland and the rest of the UK.
Yet a video emerged showing Johnson telling exporters that they would not need to fill in customs declarations for goods moving between the region and the UK, and that if they were asked to do so, they should call him and he would “direct them to throw that form in the bin”. Never mind that if his deal gets passed eventually, it would be a legally binding international treaty.
That’s one of the issues still to be resolved, and December’s election is unlikely to provide an answer. It’s likely the country will remain split down the middle, and Brexit will continue to dominate the political process, leaving less time for the things that matter. That’s why Moody’s and businesses across the country are worried.
None of this is good news for SA. A hard Brexit, where there is no transition agreement, is still a distinct possibility when the latest extension ends.
Whether we like it or not, a damaged and diminished UK and Europe will be to our detriment, considering that they remain our most important economic partners. And this at a time when the global economic outlook is uncertain, so much so that two officials at the Bank of England voted for a cut in interest rates last week.
When the last global economic crisis struck, SA at least had the cushion of low debt levels. Now, with the debtto-GDP ratio approaching 70%, there is no room for error and we are ill-prepared for any shock that might come our way.
One can only hope that finance minister Tito Mboweni is making headway in getting political support for the reforms needed to get the economy going.