Business commentary Colin proudfoot

2016-11-03 06:00
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PRAVIN Gordhan needs to be congratulated on a balanced and principled mid-term budget announcement. Given the tough economic situation and the distraction of facing spurious “fraud” charges, he delivered a mature and informed package that continues to reinforce spending cuts as well as the determination to keep key economic indicators in focus.

Although he didn’t have much to work with, this is the kind of fiscal maturity that ratings agencies want to see. Thankfully, the charges have now been withdrawn so the man can focus on walking what can only be called a tightrope as we try to avoid a ratings downgrade in December.

Speaking of ratings agencies, the proposed BRICS agency has come under focus with Jacob Zuma advocating the fast tracking of the setting up of what he calls “a competitor” to Fitch, S&P and Moody’s.

Zuma has criticised the “big three” for showing a bias against emerging markets. The reality is that ratings agencies have no reason to show any bias. They are not providers of finance, they merely issue objective assessments of the risk associated with lending money to various countries.

As with any financial transaction, the level of risk determines the cost of borrowing. A Brics ratings agency risk assessment will have no bearing on how a non-Brics investor views risk, so what’s the point?

When one compares a professional and mature piece of work like the mid-term budget with a politically motivated and amateurish initiative like a Brics ratings agency, the difference in the quality and aptitude of some of our leaders becomes starkly apparent.

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