Gordhan: urgent shift may save SA from junk
Avoiding a credit rating downgrade depends on a number of things, says Gordhan who pointed out a change in leadership in December could give the country a break
SA has a chance of averting a credit rating downgrade next week when international agencies Moody’s Investors Service and S&P Global Ratings release their ratings of its sovereign debt, says former finance minister Pravin Gordhan.
SA risks falling further into junk status and being eliminated from leading global bond indices, which some economists believe is a certainty, especially after the resignation of the Treasury’s head of budget, Michael Sachs, and a last-minute push by President Jacob Zuma for free higher education.
Sachs is the third senior official to resign in 2017 after Gordhan was booted out in a cabinet reshuffle in March.
Lungisa Fuzile, who was Treasury director-general, and Andrew Donaldson, the acting head of the state technical advisory centre attached to the Treasury, left several months ago.
Speaking to Business Day TV on Tuesday, Gordhan said: “Whilst we might say there are perceptions of state capture, I want to submit that some of it is very real, some of it might still need to be proven, but there is enough that is real that we should actually be very concerned about.
"If we can work our way out of that cycle and turn ourselves towards a virtuous cycle over the next three months or so then it’s possible in the first instance to avoid the last downgrade – potentially from Moody’s but secondly create a real round of optimism in the country."
Asked if Sach’s resignation would spark a downgrade, Gordhan said: "I think no single act will spark a downgrade, but if each of these factors begin to demonstrate more recklessness on the part of certain parts of government it will lead to that particular end result."
Much depended on outcome of the ANC elective conference in December. "If we see a different leadership emerging by the end of December we might get the break that we require as a country. If we follow that up with very urgent steps to restore confidence, to show that we’re doing the right things, fire some of the people in the SOEs that are culpable in this regard, make sure they are prosecuted for what they have done then I think we are sending a signal to the South African people and the ratings agencies that we are back to the serious path we were on."
He said the Treasury had not lost all institutional memory.
"There’s just about enough institutional memory there. But what the South African public needs to understand is that these sorts of skills and wisdom that goes with those skills take over a decade to develop. One of the lessons we’ve learnt in a very harsh way at Sars and elsewhere is that you can’t reproduce those skills overnight, nothwithstanding the protestations that we might hear from incumbents at this particular point in time."
He said more departures would not result in Treasury’s collapse however, "we certainly are shooting ourselves not just in the toe but in the entire foot in a very serious way and therefore it’s in the interests of the country as a whole to make sure that we stop these tendencies that we’re moving towards."
Gordhan also warned that revenue shortfall of R50.8bn the Treasury forecast in October could be wider by end of the financial year in March 2018.
"If we now suddenly say at point of the year that you’ve got to find R40bn or R50bn [for the free higher education] and that we’re going to find it at a time that we’re growing so minimally – 0.5% or 0.6% — and tax revenue is R51bn down as it is currently estimated, when it turns out in March next year – the end of the financial year might be a very different story. So you’ve got to take that into account as well."
Gordhan said a ratings downgrade may not be "the end of the world" however, it would take five to 10 years to recover from this.
In October, in the medium term budget policy statement, the National Treasury projected South Africa’s debt to GDP ratio to hit 60% by 2021/22.
Gordhan said this drastic estimate "was partly a consequence of weak economic growth and business confidence and political uncertainty and tension. It was also due to a new level of indecision about important things and decisiveness about the wrong things in certain quarters in government".
But he cautioned against an over-rationalisation of the numbers particularly in the tax administration saying "you can play all kinds of gymnastics with numbers and explanations and ratios and so on to legitimise what essentially is mismanagement or misdirected priorities".
Gordhan has been attacked as the silent hand in the writing of author and journalist Jacques Pauw’s books "The President’s Keepers".
He said he had nothing to do with the book but hinted of an offering of his own in future.
"There will be a time when we’d love to record our experience and my experience since 2009 and the kind of desperate measures some people resorted to in order to facilitate stealing left, right and centre of what is essentially our people’s money."