Too early to as­sess SA’s progress – Moody’s

The Citizen (KZN) - - Business -

Moody’s In­vestors Ser­vice is look­ing for signs of a cred­i­ble medium-term vi­sion for SA and say it’s “a bit early” to judge the gov­ern­ment’s pol­icy and struc­tural re­forms af­ter chang­ing its out­look on the coun­try’s credit rat­ings to neg­a­tive three months ago.

“It is rel­a­tively fresh, our neg­a­tive out­look,” Lu­cie Villa, Moody’s vice-pres­i­dent and lead sov­er­eign an­a­lyst for South Africa, said on the side­lines of a con­fer­ence in Lon­don on Tues­day. Eco­nomic growth data is “not point­ing to a pos­i­tive or a par­tic­u­larly neg­a­tive di­rec­tion. There is noth­ing re­ally to flag for the time be­ing”.

The rat­ings com­pany cut the out­look for SA’s Baa3 for­eignand lo­cal-cur­rency as­sess­ments to neg­a­tive on 1 Novem­ber. That brought Africa’s most-in­dus­tri­alised econ­omy to the brink of a full­house of junk credit rat­ings, af­ter Fi­nance Min­is­ter Tito Mboweni pre­sented a rapidly de­te­ri­o­rat­ing out­look in his medium-term bud­get pol­icy state­ment. Gross gov­ern­ment debt will surge to 80.9% of gross do­mes­tic prod­uct in the 2028 fis­cal year un­less ur­gent ac­tion is taken, he said.

Moody’s will look to the 26 Fe­bru­ary bud­get re­view for de­tails on how the gov­ern­ment will con­tain spend­ing and bol­ster rev­enue, Villa said.

While Mboweni is re­dou­bling ef­forts to cut the state’s pay­roll costs, which make up 35.4% of na­tional spend­ing, the cur­rent three-year agree­ment may be dif­fi­cult to change, she said.

“The big ques­tion is on the tax rev­enue side, be­cause there has been more than a year that they have been try­ing to im­prove tax com­pli­ance,” she said. “I be­lieve there is po­ten­tial there.”

Econ­o­mists, in­clud­ing Absa Bank’s Peter Wor­thing­ton and Miye­lani Maluleke, ex­pect the value-added tax rate to be hiked to 16% from 15% in the bud­get, adding R35 bil­lion to the fis­cus in 2020-21.

While the gov­ern­ment is forg­ing ahead with plans to split loss-mak­ing power util­ity Eskom into three units un­der the guid­ance of new CEO An­dre de Ruyter, Moody’s says its rat­ing sig­nals the com­pany’s fi­nan­cial po­si­tion is de­te­ri­o­rat­ing, rais­ing the need for the gov­ern­ment to step in again.

“We be­lieve the gov­ern­ment is go­ing to be the last re­sort cap­i­tal provider and the tax­payer will be the one still pay­ing,” she said.

While some an­a­lysts ex­pect a down­grade to junk on 27 March, when Moody’s is next sched­uled to as­sess SA, Villa said the date is ten­ta­tive and the com­pany is not obliged to stick to it.

“The out­look is neg­a­tive, so what we are flag­ging is not a nec­es­sar­ily im­me­di­ate down­grade,” she said.

A down­grade will see South Africa with­out any in­vest­ment-grade rank­ing for the first time in 25 years. – Bloomberg

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