Ratings Agencies Decisions
Just last week Fitch Ratings affirmed South Africa’s long-term foreign and local currency debt ratings of BB+ with a stable outlook.
Importantly, it noted the fact that despite South Africa’s credit strengths of deep local capital markets, the favourable government debt structure and a track record of fairly prudent fiscal and monetary policy, three particular areas continue to weigh us down.
These are: our low potential economic growth; the sizeable contingent liabilities; and the deteriorating governance of state-owned companies (SOCs).
Based on the cabinet reshuffle in March this year, the agencies flagged concerns about overall governance, but especially at SOCs, risks to fiscal consolidation and to private sector investment as a result of weaker business confidence.
Almost simultaneously, S&P's affirmed its junk status of our foreign currency ratings, but held back from downgrading our local currency rating to junk status. However, it is noteworthy that S&P's issued a stark warning of “political risks” to our economic growth imperatives.
Moody’s, at last count, has us on review for a downgrade. At the time of writing, it has not yet announced its decision. However, Moody’s ratings are higher than those of Fitch and S&P's and the big question will be whether Moody’s will put a stable or a negative outlook on its rating, with a negative one signalling it could look to downgrade again within the next two years.
And just as we thought that things could not get any worse, news released by Statistics South Africa a few days ago revealed that we have effectively slipped into a recession. Gross domestic product (GDP) declined 0.7percent during the first quarter of 2017, coming short on the heels of a 0.3percent contraction in the fourth quarter of 2016.
Two quarters of consequent negative growth means that the next few months are bound to be tough times.
For us, this is particularly disconcerting, because the country, as the NDP, Vision 2030 argues, requires strong economic growth if we are to deal decisively with poverty, unemployment (currently at more than 27.7percent) and inequality.
Thus, the risks are stark. We now really need to rally around a “response strategy” in which the government, together with all the relevant critical stakeholders, work more deliberately together, in partnership, and in a much more strongly co-ordinated manner. The time to act is now.
As a matter of exceeding urgency, we need to exert every effort at ensuring that South Africa is not downgraded any further.
Thus, our first order of business is to reaffirm our commitment to maintain fiscal consolidation and keep this firmly on track.
Secondly, we need to step up our collective efforts to improve our economic growth, and dispel perceptions of the ongoing erosion of policy certainty, trust and confidence.
We will also have to make headway in relation to the challenge of improving governance at all levels, including in SOCs and the broader private sector.
These are all necessary conditions to ensure that we execute on our national imperatives, as required in the NDP.
To this end, the government must re-engage its social partners with more urgency, seriousness and commitment.
The joint work of the government, business, labour and broader civil society must continue with greater resoluteness and with strongest leadership.
We have proven over the last while that where there is trust and confidence, ratings agencies tend to give us the benefit of their goodwill. We should have no doubt that part of the task at hand is about forging an entirely new social compact.
Both leadership in the government and the ruling party, the ANC, have openly committed to improving business and investor confidence in South Africa. The importance of this should not be under-estimated.
Hour for action
This is the hour for decisive action and not for the luxury of debating the role of the ratings agencies. Let us be under no illusion, we will feel the impact of the ratings agencies through higher borrowing costs for government and SOCs.
Chances are that our budget will be directed less towards core spending areas such as infrastructure, health, education, housing and social security services.
It could also translate into reduced demand for South African stocks and long-term investments.
A weakened rand will increase the costs associated with imported goods and services, thus stoking high inflation and higher cost of living, which will be borne more acutely by the most vulnerable citizens and communities.
Our immediate and urgent overriding priority is to address the stagnation of economic growth which constrains our efforts to deal decisively with our challenges of dealing with poverty, unemployment and inequality.
As South Africans, we are called upon to work in unity and tirelessly, especially in these difficult times, and ensure that we reclaim our investment grade status.
The task at hand is simply one of restoring trust and confidence in what we do, how we do it and how we ensure we achieve the impacts we so desperately.
We must do this for the sake of the country, in the first instance. This will provide the ratings agencies and investors the necessary positive cue.
As South Africa, we recognise that we have made substantial progress toward improving the lives of citizens, since the transition to democracy in 1994.
But we must also acknowledge that we are losing momentum. As proxy and part of the reason for it, the economy is in a low-growth trap, with unstable real GDP growth that seems in downward free-fall, coming in at only 0.3percent in 2016.
Our economy needs to grow faster in order to increase the revenue required for us to continue our pro-poor policies and expenditure on social protection, which for some is the only buffer against the ravages of poverty.
Two important challenges must now urgently be dealt with head-on:
One: Restoring, as a matter of critical importance South Africa’s credit rating to investment grade is the one critical pivot. It would help certainly boosting investment into our economy.
Better credit rating
A better credit rating would reduce the attendant risk of investing in our country.
Two: More investment is required to get South Africa out of the current doldrums. Investment will serve to boost demand in our economy and will serve to release other positive spill-over effects across a number of related economic sectors.
The current administration is acutely aware of the immense challenges that must be overcome.
It remains committed to deal with these challenges in order to accelerate progress towards the goals of the NDP: Vision 2030, which is the overarching framework for decisions and measures to achieve inclusive prosperity, and address unemployment, poverty and inequality.
The NDP is our collective commitment, as a nation, to strive for the attainment of these goals and remains an imperative.
To achieve these overarching goals, the NDP lists the critical requirements for success, which include focused leadership that provides policy consistency; ownership of the plan by all layers of society; strong institutional capacity at technical and managerial levels; efficiency in all areas of government spending, including management of the public service wage bill and making resources available for other priorities; and prioritisation and clarity on levels of responsibility and accountability in every sphere of government, as well as a common understanding of the roles of business, labour, and civil society.
It is a framework for partnership and co-ordinated and consistent action, and for forging the necessary social compact(s) to cement the consensus we require to propel us forward and stay the course, because the changes we seek are long-term.
Socio-economic development requires far-sighted leadership. This is what inspired the NDP, which was produced by the first National Planning Commission.
This was an independent body of experts appointed by President JG Zuma, with the task to consult society and key stakeholders in the process of crafting a plan and a vision for South Africa that will be in a much better place by the year 2030.
We must therefore commend our parliament and all political parties who in August 2012 adopted the NDP in consensus, on behalf of the people of South Africa.
The government has to play a leading role in the implementation of the NDP, relying on the strategic levers at its disposal, which it must fully exploit.
The government is tasked by our citizens to legislate and regulate for the economy and society to progress and transform in accordance with the vision of our Constitution, and to ensure that the national budget (which currently averages R1.6trillion per annum over the medium-term), as well as state-owned companies, are accordingly aligned for this purpose, among other levers
However, it must be underlined - the NDP was conceived and endorsed as a plan for all of South Africa, not just a government plan. Thus, we require all hands on deck, now more than ever.
Goals and targets
In this regard, the government is acting. It has ensured that the goals and targets of the NDP are integrated into government’s Medium-Term Strategic Framework (MTSF) for the electoral period 2014-2019, as the first five-year implementation programme for the NDP.
The MTSF is a transparent presentation to South African citizens of the work of the government, of the actions being undertaken and the outcomes we seek, and what is being measured, towards realising the goals and vision of the NDP.
The Department of Planning, Monitoring and Evaluation (DPME) has the task to ensure that the strategies and annual plans of national and provincial departments are aligned to, and advance, the long-term goals and priorities of the NDP.
On this basis, the DPME monitors the implementation of the NDP and reports quarterly to the cabinet, and to the public through our website, as well as through a branding and communication campaign that we are stepping up.
All of this is part of institutionalising proper, evidence-based planning across the whole of government, and to lay the basis for effective implementation and accountability, as individual departments and as government collectively.
Tshediso Matona is the acting director-general, Department Planning, Monitoring & Evaluation and secretary for National Planning.