BONANG MOHALE: Downgrade triple whammy hit SA when it was already down as fiscal crisis looms
Pessimism over future is likely to have a further deleterious effect on revenue collection
Life just got much more difficult for SA. On Friday, ratings agencies Fitch and Moody’s joined S&P in plunging the country deeper into subinvestment grade, also known as junk status.
The key driver behind Moody’s rating downgrade to Ba2 — two levels below investment grade — is the “further expected weakening in SA’s fiscal strength over the medium term”. Fitch said “the pandemic has severely hit SA’s economic growth performance, and GDP is expected to remain below 2019 levels even in 2022”.
The ratings agencies’ pessimism over SA’s future is likely to have a further deleterious effect on revenue collection, as it has further raised the cost of borrowing and pushed the economy into its longest recession in almost three decades.
This is precipitated by the following:
- Pedestrian economic growth in the last 10 years.
- Weak finances.
- A deteriorating debt burden and debt affordability.
- The significant fiscal, economic and social constraints.
- Iterative rising borrowing costs.
- The expected 8% GDP contraction this year.
- A ballooning public wage bill with consistently above budgeted wage settlements for the last 10 years that has surged 51% since 2008.
- The lack of political will to implement and deliver long-promised systemic and structural economic reforms to boost growth.
- The consolidated budget deficit, which will widen to almost 16% of GDP this year while debt levels are set to peak at 95.3% of GDP by 2025/26 and will rise to 110% by 2024 when guarantees to state-owned entities/companies (SoE/Cs) are included.
- Stubbornly high levels of income, wealth and asset inequality.
The Covid-19 shock is expected to push the country into its deepest recession since the Great Depression. The finance minister’s October medium-term budget policy statement indicates that the government debt trajectory will probably only start coming down after 2026. SA must do everything in its power to avoid a fiscal crisis and debt default and learn from other countries: like the 1980s Latin America’s debt crisis that took no less than seven years to resolve; Argentina’s in 2001 and again in May this year; Zambia becoming the sixth country to default on its bonds on November 13; Ecuador, and so on. Eight countries now spend about 30% of their fiscal revenues just on interest payments, and SA is already on about 20%.
On November 21 and 22 the G20 leaders signed off on a “common framework” for renegotiating the debt of the world’s poorest countries. The framework in effect extends the principles of the Paris Club to those G20 members that are not already in it. It applies only to countries with unsustainable debt. A review of the “architecture” for resolving sovereign debt, published by the IMF in September, pondered other contractual innovations that might ease future restructurings as the long history of debt restructurings attests, that “fixed” income liabilities are often anything but.
We have no more than two years to sort ourselves out before reaching a point of no return
Solemn commitments to pay in full and on time cannot always be kept. Until then, procedures for resolving an international debt crisis would typically mean the bankrupt country negotiates funding and supervision with the IMF, which must decide how much the country can repay and what belt tightening it must endure. Then the country asks for leniency from other governments to whom it owes money, and thereafter it seeks a comparable deal from private lenders.
The triple downgrades have worsened what is already the lowest confidence, trust and residual hope since the World War 2 — with an attendant deep sense of depression, anger and restlessness by the public.
One bit of good news is that even with unreliable electricity and intermittent water supply, food security is improving, our media is still free and the judiciary fiercely independent. Recently, with the National Prosecuting Authority (NPA) arrests of some senior ANC implicated politicians, we can hope that this is the beginning of some green shoots. The NPA, SA Revenue Service, Reserve Bank and National Treasury are progressively getting stronger. The younger generation is in the majority, with about 70% being 35 years and younger, has no baggage and must be assisted to take over leadership.
Having been presented with four economic growth recovery plans (by B4SA, ANC, Treasury and Cosatu), the cabinet also produced its own Economic Reconstruction and Recovery Plan (ERRP) in October — amid it still trying to execute on the NDP 2030 and after the NGP, AsgiSA, Gear and RDP. Opposition parties have gone quiet.
Though the ANC is a hegemony, it is not getting away with hegemonic behaviour. After nine wasted years of state capture, a capable state has now become a weak state — on the way to a dysfunctional state — constrained by a denuded state and hollowed-out public sector. There is a real risk that the ANC is now becoming a harbinger of corruption, which must be fixed both top down and bottom up.
As always the poor will always suffer the most. The private sector is helping even though there is still no fundamental shift in thinking. The government does not seem to have a crisp, clear, concise and precise plan to lead. The right ideas are on the table but there is a failure to act in a joined-up fashion. There is no capacity to comprehend and lead the complex ERRP. Good people are buried in departments such as the Treasury. No-one is prepared to deal with the details. Infrastructure SA has good people but zero political will to embark on detailed work.
The IMF programme is coming, and the Chinese can only follow thereafter. The Reserve Bank will not be the lender of last resort after all. We have no more than two years to sort ourselves out before reaching a point of no return.
We must all begin the arduous task of restoring confidence, extending trust and giving our people hope. South Africans will celebrate when they see the top state capture miscreants in orange overalls. We are desperate for some big-ticket wins. More than ever we need focused and moral leadership from the governing party, government and business, working together. Rooting out corruption and defeating state capture in the private and public sectors remain a priority. SA is crying out for demonstrable ethical leadership, final accountability, absolute transparency and good co-operative governance, the values upon which our democracy is built.
We long for leaders in the public and private sectors who do not bribe, steal or cheat. Where we find it necessary and prudent we should reject corruption as part of our country’s DNA and speak strongly against those who are its perpetrators. What SA needs now more than ever is common purpose for common good, and a common enemy like we used to have in apartheid and collectively succeeded in defeating.
When South Africans learn to truly know one another they will over time even get to like one another. We must mobilise, galvanise, agitate and orchestrate about the new common enemy. We must build a better country for all. We are the generation that must do the heavy lifting so that our children can fight their own new battles. The time for moaning and groaning is over, because if it is to be it is up to you and me.
• Mohale, a past president of the Black Management Forum, is chancellor of the University of the Free State, professor of practice in the Johannesburg Business School College of Business and Economics, and chair of Bidvest Group. He is also author of the book Lift As You Rise.
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