EDITORIAL: Ratings woes not over for SA
The decisions of Fitch, Moody’s, and S&P Global should primarily be read as reprimands — not reprieves
Briefing media at the National Economic Development and Labour Council (Nedlac) last week, Deputy President Cyril Ramaphosa listed a series of reforms the government, business and labour were working on but emphasised these were to advance SA’s interests, not to please ratings agencies: "We are doing it for us".
It’s important to keep that in perspective as we navigate the cliffhanger that ratings agency season has become since SA was downgraded last year to the very edge of investment-grade status by two of the three major agencies, with the third (Moody’s) putting SA on a negative outlook.
In the event, SA’s investment-grade rating has survived the first round more or less intact. Fitch changed its stable outlook to negative, so its rating is now identical to S&P’s at just one notch above subinvestment grade, "junk" status and on negative outlook. Moody’s, by contrast, declined to take any action at all and simply put out an updated opinion, so it is still two notches above junk status with a negative outlook, implying it could look to downgrade in the next while.
We now wait to see what S&P, which has been the most aggressive of the three, will do on Friday.
Perhaps it was coincidence that the committee of principals on labour reforms and the national minimum wage, which Ramaphosa chairs, seemed to reach some broad agreements just as the three ratings agencies were visiting SA ahead of making their decisions. Perhaps it was coincidence, too, that the long-awaited integrated resource plan, which spells out the plan for SA’s longer-term electricity generation mix, happened to be released at about the same time.
But perhaps the timing of these announcements was no coincidence. And if the prospect of a ratings agency downgrade helps to focus the collective mind, that surely is in SA’s best interests.
In the event, Moody’s, and to some extent Fitch, did give SA credit for making progress on complex reforms such as labour and energy policy, as well as for the strength of some of its key institutions and for the government’s success so far in sticking to its self-imposed expenditure ceiling.
But — and it is a big but — their decisions at the weekend should be read primarily as reprimands, not reprieves, and, if anything, the pressure on SA to effect urgent reforms to its economy is greater than ever.
The government, business and labour team, under the leadership of Finance Minister Pravin Gordhan and the CEO Initiative’s Jabu Mabuza, has worked impressively hard to sell a positive narrative about the country to ratings agencies and investors, and they have evidently succeeded with two of the agencies — for now.
But those broad agreements and early-stage plans have to be implemented. And SA’s contested institutions have to hold up in the face of the kind of political infighting and power plays that have produced, for example, the Department of Mineral Resources’ new idea for a mining charter in the face of loud protest from the mining industry.
Fitch has put us on notice with a firm step in the direction of a downgrade and warned it will downgrade in the event of "continued political instability that adversely affects standards of government, the economy or public finances". If economic growth doesn’t recover, that will mean junk too.
Moody’s sees more upside but the warning from the agency that we need to do something about the economy and our political infighting is even louder and more specific, with it warning of a downgrade "in the absence of fundamental structural reforms supporting higher and sustainable medium-term growth".
The message is clear. And even if SA gets another chance from S&P too this week, time is running out.