Picture: ISTOCK
Picture: ISTOCK

The assault on SA’s institutions by President Jacob Zuma, laid bare during his March cabinet reshuffle, has led to a discernible change in tone from ratings agency Moody’s.

It’s important because, until now, Moody’s was the most benevolent of the three ratings agencies, the one agency that had swallowed government’s story and bought its vision. This is why it had kept SA’s sovereign rating at least one notch higher than that from Fitch and S&P. It was also why, in March 2016, Moody’s chose not to downgrade SA, citing the country’s strong institutions, led by an independent judiciary and a rock-solid national treasury.

In March this year, when Zuma axed Pravin Gordhan as finance minister, there was an almost unseemly scramble for Fitch and S&P to downgrade SA’s foreign currency rating to junk status. Even then, Moody’s waited.

Finally, on Friday, Moody’s showed its hand. Tellingly, it illustrated a subtle but important shift in tone, away from the more benevolent tone of the past. In lowering the rating by a single notch (still leaving it at investment grade), it cited the same concerns its peers had mentioned: political developments have weakened economic and institutional strength and governance.

So where do we go from here?

A look at the other emerging markets cut to junk status shows that the impact of a downgrade depends largely on how fiscal authorities respond. A quick and positive response can limit the inevitable spiral into low consumer and business confidence, currency weakness, higher inflation and a series of interest rate hikes.

So tough decisions to tackle corruption — and in SA’s case, the capture of state institutions — are more important than ever before. If government is serious about addressing the downgrade, it will need to take an industrial-strength hose into the corridors of inept and corrupt state-owned enterprises — and it will need to do it pronto.

Spending limits on public money must also be policed as never before. Treasury expects the public debt ratio to peak at 53%, but Moody’s now warns that slow growth could push this to 55%.

This view was given credence last week, with news that SA had slipped into a technical recession during the first quarter of the year. The International Monetary Fund predicts growth of just 0.9% in SA this year — and even that seems optimistic in some quarters.

The problem, however, is you don’t get the feeling that tackling junk status is all that high on finance minister Malusi Gigaba’s priority list.

This week, Gigaba cancelled a press conference to brief the media about government’s plan to tackle the problems flagged by Moody’s. Instead, he attended an ANC national executive committee meeting. That, alongside government’s garbled response to the Fitch and S&P downgrades, is cause for concern.

The signal government is sending to the market is one of lethargy. It will respond, it says, when it gets around to it. Even then, its message is confused: we need radical economic transformation, it says — yet, at the same time, inclusive growth is also the answer. It’s about as coherent as an ANC Youth League statement.

The other risks lie with the ANC. Moody’s says growth, and the introduction of market-friendly investment policies between now and the ANC leadership conference in December, are unlikely. Government leaders must shake themselves out of a slumber that has characterised their response to the biggest economic crisis of our democracy. Failure to do so dooms us to years of low growth, high taxes and cuts to social grants that will spark a groundswell of anger.

Leaders must take their eyes off the leadership race and do what we pay them to do.

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