Picture: REUTERS
Picture: REUTERS

The recent political changes, including a change in guard at the South African Revenue Service (SARS), have bolstered the view that SA will avoid a credit ratings downgrade on Friday when Moody’s is scheduled to make a decision.

On Monday, President Cyril Ramaphosa announced the suspension of SARS commissioner Tom Moyane, who has been shrouded in controversy.

Ramaphosa said on Monday in a scathing letter that he had "lost confidence in his [Moyane’s] ability to lead SARS".

"This is a guy who has been clouded in corruption with his cronies. Moody’s doesn’t look at individuals but the long-term implications," said economist Thabi Leoka.

SARS has reported revenue shortfalls on a scale not seen since the 2008 financial crisis. Under Moyane, a shortfall of R48.2bn is expected for 2017-18.

According to the Treasury, this reflects weak economic growth, administrative challenges within the agency and increased tax avoidance.

The appointment of Martin Kingon to replace Moyane for now would be welcomed given that he has been with SARS since 1998, said Leoka.

Moyane’s restructuring 

Deloitte managing partner for tax and legal Nazrien Kader said under Moyane, there was uncertainty that had an impact on performance.

"There was uncertainty caused by Moyane’s restructuring of SARS and a mass exodus of experienced people. Moyane was inwardly focused, which stifled the progress at SARS," said Kader.
BNP Paribas economist Jeff Schultz said: "The rebuilding of institutions bodes in favour of SA not being downgraded. But it must also be taken in context of the recent political changes, including the election of Ramaphosa and the cabinet reshuffle as well as stronger growth."

Moody’s is the only one of three major ratings agencies that has SA’s rand-denominated debt and debt denominated in foreign currency at investment grade. A downgrade would result in SA’s expulsion from the Citi World Government Bond Index and projected outflows of R100bn.

Even if SA averts a downgrade for now, it is likely to remain on the Moody’s negative outlook list until its next decision on October 12.

A lot more needs to be done in terms of growth, policy certainty and a commitment to fiscal consolidation, said Schultz.

The political changes also bode well for an interest rate cut. In the last monetary policy committee meeting the Reserve Bank identified political uncertainty and a possible further rating downgrade as upside risks to inflation.

Inflation moderated to 4% in February from 4.4% in January, measured by the annual change in the consumer price index, and is expected to be well contained within the 3-6% target band.

The firmer rand trajectory, if sustained and supported by further positive political developments, could lead to an early interest rate cut by the Reserve Bank next week, said Nedbank economist Busisiwe Radebe.

Capital Economics econo-mist John Ashbourne, however, said the Bank was likely to leave rates on hold as policy makers would want to see the result of the value-added tax hike.

But NKC economist Elize Kruger said a 25 basis point cut was on the cards.