Gungubele: Moody’s may take a ‘harsh’ view

Moody's het talle lande op die waaklys  vir 'n moontlike afgradering in 2017.
Moody's het talle lande op die waaklys vir 'n moontlike afgradering in 2017.

When reviewing the country’s credit rating following last week’s budget speech, Moody’s Investors Service could take a ‘harsh’ view, Deputy Finance Minister Mondli Gungubele said on Monday.

In particular, the credit rating agency might focus on the budget speech numbers or they could focus on the national treasury leadership and give South Africa a chance to get things right.

“There are those that will look at the numbers and when they are not happy with the numbers – they don’t care how great the leadership is. There are those that look at numbers and even if they don’t think the numbers are not good – but because of the reputation of the people [in charge] – give them a chance – maybe one week or two weeks,” Gungubele said.

He was speaking to the media after testifying at the commission of inquiry into allegations of impropriety regarding the Public Investment Corporation (PIC) in Pretoria on Monday. Gungubele is also chairperson of the PIC, which manages more than R2 trillion in funds on behalf of key government clients.

Moody’s is set to issue its latest review of the government’s credit rating on March 29 with the budget speech to play a key part in that assessment.

Moody’s is the last major rating agency to assess the government’s credit rating as investment grade. S&P Global Ratings and Fitch Ratings last year downgraded South Africa’s credit rating to “junk” status, which is the colloquial way of referring to a sub-investment grade rating.

“My view – I have not found those people [Moody’s] to take decisions lightly,” he said.

He said that Moody’s would look at the state of government finances from the point of view of the state’s payment obligations, its sources of funding, its ability to access funds and the would determine if the government could sustain its position.

Some of the things that Moody’s would look at would include debt servicing costs of more than R200 billion a year, more than R500 billion in government debt exposure to state-owned enterprises and the size of the government wage bill, he said.

“Moody’s agrees that the manner in which we are – we can’t go on like this. The challenge we are going to face is that they are going to analyse all the measures. They will check the integrity based on the implement ability of those measures and they will make a decision.

“But I don’t know what Moody’s will do [when it reviews South Africa’s credit rating],” he concluded.

After the budget speech, Moody’s issued a report where it said that the document suggested “an erosion of South Africa’s fiscal strength and highlights the government’s limited fiscal flexibility in a challenging economic environment characterised by slow economic growth and persistent financial stress at state-owned enterprises”.

“The fiscal slippage in fiscal 2018 is actually more severe, at 0.6 percentage point of GDP, when compared with the original budget,” Moody’s said.

“Achieving and maintaining spending restraint will be challenging for the South African government, especially if growth remains weak,” the agency said.

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