SA did enough to stave off downgrade, says Nhlanhla Nene
Finance Minister Nhlanhla Nene on Monday met with Moody’s Investors Service and says he is confident that through its most recent budget SA has done enough to stave off a credit ratings downgrade.
Nene was also optimistic about the likelihood of the Treasury revising the growth rate upwards in line with the uptick in consumer and business confidence.
"From my side I’m quite confident we presented a credible story," Nene said.
Ratings agencies Fitch and S&P Global Ratings already have SA’s ratings in junk territory, with S&P having cut its local currency rating in response to the October budget.
The agencies have flagged three concerns: weak growth prospects, question marks over SA’s commitment to fiscal consolidation and the risk that guarantees to ailing state-owned enterprises could be called.
Moody’s is the only one of three major ratings agencies that has SA’s foreign-currency and rand-denominated debt at investment grade. It is due to make an announcement on March 23.
A downgrade would result in SA’s expulsion from the Citi World Government Bond index.
"They were unhappy with the medium-term budget policy statement, unhappy with our indicators, but they gave us the opportunity to get to the Budget Review. Moody’s is here till Thursday and we’ve improved on the weakness of our balance sheets, growth and governance of state-owned entities," Nene said. He said the ratings agency welcomed the government "putting dates to what we do" and that there was commitment to act decisively against corruption and to move swiftly to solve governance issues in state-owned enterprises.
The 2018 Budget Review projects economic growth at 1.5% in 2018, rising to 1.8% in 2019. But Nene gave the assurance that growth was likely to show improvement by October.
Moody’s declined to comment on its analysts’ meetings.
Nene said that based on recent developments, including the election of President Cyril Ramaphosa and a budget statement welcomed by markets, he was confident that SA would see stronger economic growth.
"The 2018 budget has the ability to inspire confidence along with the expectation for the new president and leadership to finalise outstanding policy reforms like the Mining Charter," he said.
Despite the outcry over the VAT increase, from 14% to 15% from April 1, Nene said he stood firmly behind the budget.
"I have gone through the documents and had briefings and I am satisfied with the underlying reasons for the VAT hike. What now remains is to take the public into [our] confidence," he said.
Alexander Forbes chief economist Lesiba Mothata said the budget had put SA back on the path of fiscal prudence, which would be positively viewed by ratings agencies despite the revenue shortfalls and tax hikes.
Old Mutual economist Johann Els said the budget was an encouraging sign that the new administration was willing to take the tough decisions to avoid a further downgrade. SA could also expect future inflows into the local bond and equity markets as markets priced in a lower probability of a further downgrade by Moody’s.