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25 NOVEMBER 2020
Ratings cuts bad news for SA

by Raymond Parsons: Professor at the NWU School of Business & Governance and a former special policy adviser to Busa.
The latest expected decisions by both Fitch and Moody’s to cut SA’s investment grade further into junk status are not good news for the SA economy. Although Standard and Poor have kept their investment outlook as neutral for now, the fact remains that overall this is SA’s worst rating ever, complicated by Covid-19. These ratings again confirm the seriousness of the growth and fiscal risks faced by the economy and highlight the urgent need for SA to improve its economic narrative. It also puts the right fiscal ‘mix’ in the main Budget next February into even sharper focus.

What emerges again from much of the agencies’ latest analysis is that, while acknowledging the importance of the new Economic Reconstruction and Recovery Plan (ERRP) and the recent Medium Term Budget Policy Statement (MTBPS), there is a ‘credibility gap’ around whether these policies and projects will be adequately implemented. Implementation risks are seen as rising. A lack of confidence exists as to whether the tough decisions, such as on the containment of the troublesome public sector wage bill, will indeed be taken in order to help stabilise SA public finances.

The strong message from the latest agency assessments therefore is that, in getting its economic house in order, SA needs to urgently build more confidence in its ability to deliver on what has been decided on the growth and fiscal fronts. In charting a course towards renewed growth and fiscal sustainability, the sooner a firm sense of economic direction can be consolidated, the better the prospects for boosting investor confidence, achieving job-rich growth, and eventually regaining investment grade status.
Source:

NWU Business School
At the NWU Business School, we strive to change the way our students think about business. We want our students to become managers/leaders in their own right. Visit our InfoCentre or website.

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