South Africans tend to obsess about the possibility of a ratings downgrade to junk status, but this focus could be misplaced.
By Kathy Gibson
Kyle Mandy, tax lead at PwC, believes Moody’s will give the country the benefit of the doubt for the next few months and see what we do with public sector spending.
“They will see what develops by November,” he predicts. “If we manage to achieve what we have said in the budget, there is an outside chance that we will keep our investment-grade rating.”
Having said that, Mandy says a downgrade may not have such a big effect, as it has largely been built into the market already. “The market reacted positively to the budget because it had already factored in a downgrade.”
Edward Kieswetter, SARS commissioner, states: “IT matters and it matters now. If you are buying it matters, if you are saving it doesn’t.
“And most of it is factored in already. I think we overplay it to some extent,” Kieswetter says.
“But that doesn’t mean we must ignore it. The reasons that lead to a downgrade are what is important.”
He points out that a lot of the work being done on an institutional level is slowly building capacity and structures that were destroyed.
It is slow, but it is happening, Kieswetter says. “Imagine if, alongside that, South Africans take a positive perspective. So I think we mustn’t get our knickers in a knot when it comes to the ratings agency; we must focus on doing the work that will grow our economy.”
Lullu Krugel, chief economist at PwC, thinks we should stop obsessing with the rating agencies and fix the things that need to be fixed in the country.
High rates do have a positive in that it attracts capital, but this could change.
“We need to focus on the sectors that we can grow,” Krugel says.
This week’s budget does contain the seeds to make this happen. “Although for me the economic plan announced last year is possibly more practical,” Krugel says.
In that document, many of the areas identified for growth don’t require government intervention, and so aren’t contained in the budget – but hold out hope of real growth.