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Moody’s sees hope for SA yet

But policy implementation is the vital key, says Prof Raymond Parsons.

NOMPU SIZIBA: Moody’s had a conference in Johannesburg on African Economies and their Fiscal Position today [Tuesday]. Taking centre stage was the South African economy, with lead sovereign analyst at Moody’s, Lucie Villa, indicating that there was a low likelihood of a downgrade in South Africa’s credit rating, adding that Moody’s expected government debt to stabilise. In attendance at the conference was Professor Raymond Parsons from the North West University Business School. He joins me on the line.

Thanks very much, Professor Parsons. I guess the sense is that Moody’s is still on South Africa’s side. What did you take away from their pronouncements on our economy and fiscal position?

RAYMOND PARSONS: Good evening, Nompu. Yes, we must start with the good news. Which is that they saw the prospect of our national debt stabilising, and also they made the point that the foreign component of that debt is not so large as to pose an external risk to South Africa. And then of course they also indicated that our banking system enjoys stability and resilience. Then, finally, as indicated, they are not about to cut our investment grade. But, of course, that does not mean they may not cut the outlook. You must understand that the outlook at the moment is stable, and if they are not happy with what they find in November, then they might cut the outlook. Remember, they also did register their concerns about the growth rate, and they have now reduced their forecast from 1% to 0.7%. That is not exactly news, all they are doing is catching up with all the rest of us, and Reserve Bank; they have something to say about our public finances, what needs to be put right in terms of the state-owned enterprises and the weak business environment. And then there is policy uncertainty.

Read: Moody’s slashes SA’s 2019 growth forecast, again

I think the issue really is that they are still waving a red flag and saying this – we are expecting you to implement what you have said you will do and, if you do that successfully, then we will have good news for you in the year ahead. But if you fail to implement what you said you would do, in terms of the programme of reforms, then we might downgrade our outlook.

I think that is more or less where we are at the moment, and we should be pleased that they stand between us and of course universal junk status, because they are the most positive of the three major agencies.

NOMPU SIZIBA: Absolutely. But what happens in practice now, because they say that they expect our debt position to stabilise and no doubt they would be looking for the government to continue to cut expenditure and so on. But we are in a really difficult situation. Our economy needs to grow and we would be looking to the government to at least provide some sort of stimulus so that things can get moving. So, how do you strike the balance between cutting your budget on the one hand, and doing something to get the general economy going on the other?

RAYMOND PARSONS: Well, I think what we have to remember, is the message from Moody’s today was “You are still on serious notice that certain things have to be put right, otherwise we may have to change our mind about you”.

Nonetheless, for me, in this dark cloud that we have around our economy, we saw today that the manufacturing outlook figures were not good for July. We are still in a low-growth trap, as we’ve indicated. For me, the silver lining in this dark cloud is of course this growth plan from the National Treasury which seeks to, as I put it, “breathalise” the National Development Plan in a way that says we can break out of the growth trap and we can avoid falling into a debt trap.

And I think the issue now is to send out a message that we will be able to start implementing, instead of arguing about what is in that growth plan, that we will seek to grow consensus around that plan – and, above all, implement it. Because one of the points made by Moody’s today is it still doesn’t see a clear path ahead. It still has some doubts as to whether we are translating what we are saying into action. And so I think the issue here is we have to build bridges and not big pictures. We’ve got to build some consensus and, above all, we need the leadership that will say we are going to take some of the major elements of the National Treasury Plan and implement them in a way that will bring us better news about the economy, that the markets and investors will respond positively, and, above all, the people out there will see that there is a hope of turning this economy around, having job-rich growth in a way that they realise some of their modest targets – and I must emphasise how modest they are, in the National Treasury Plan. But we have to make a start and the important thing now is to walk the talk. I think that’s really the bottom line which most people are now [looking to].

NOMPU SIZIBA: What I enjoy about our discussions, professor, is that you are always fairly consistent on that one  – implementation. Well, let’s hope indeed that we do see implementation sooner rather than later. Thanks very much for your time.

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Capitalist promises from a socialist/communist government. Moody’s are gullible and no wonder they are “catching up”.

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