Johannesburg - While the decision by Moody’s Investor Services to affirm South Africa’s credit rating and change the outlook from negative to stable, was widely welcomed, business on Saturday warned against complacency.
National Treasury said the Moody's ratings decision proved that if South Africans work together, “remarkable outcomes can be achieved”.
Moody’s kept South Africa’s long term foreign and local currency debt ratings at ‘Baa3’, one notch above sub-investment grade, on Friday night, after placing the country on a 90-day review for a downgrade in November last year.
The ratings agency, which is the only one of the three major institutions to have South Africa at investment grade, cited changes in the political arena, the strengthening of key institutions, improved economic growth and commitment to fiscal consolidation as reasons for its decision.
There were however some concerns related to the manner in which government will handle increased pressure on spending and balance attracting investment, while trying to alleviate poverty.
“The government fully recognises Moody’s assessment of challenges and opportunities the country faces in the immediate to long-term,” Treasury said in a statement late on Friday night.
The government also thanked all the sectors who had contributed to the “positive rating outcome” and that President Cyril Ramaphosa had committed to fast tracking structural reforms.
No reason for complacency
Business Leadership South Africa welcomed the ratings reprieve by Moody’s saying that country is “correcting some of our own goals” but warned against complacency.
“The unequivocal message from investors is that South Africa must deal with corruption and fix state-owned enterprises (SOEs). Considerable progress is being made on both fronts,” said BLSA CEO Bonang Mohale who met ratings agencies in London, together with Treasury and labour, earlier in March.
Mohale added that recent political developments such as the appointment of President Cyril Ramaphosa and the Cabinet reshuffle which “removed most of the problematic ministers”, have been positive for the country.
“The challenge now is to build on the positive momentum for the remainder of the government’s term of office between now and next year’s elections.”
The Banking Association of South Africa (BASA) said local banks were willing to work with government and other stakeholders to ensure that South Africa made the best use of this opportunity to build an inclusive economy.
BASA said this ratings decision was a clear indication of what can be achieved by strong leadership which was committed to acting in support of good governance.
The banking grouping, however, cautioned that South Africa would only regain its investment rating from all three major credit rating agencies once it achieved sustainable levels of higher economic growth and tackled its unacceptably high rates of unemployment, poverty and inequality.
To achieve this, BASA said South Africa needed: Increased policy certainty, especially on property rights, land reform and the mining charter; structural reforms in the economy; stronger fiscal discipline and good governance to eliminate wasteful and unauthorised expenditure; and meaningful transformation and empowerment to ensure all South Africans have a stake in the economy.
The Democratic Alliance (DA) hailed Moody’s decision as “good news for the South African economy but said that it would need to be accompanied by “a sustained programme of action” by President Cyril Ramaphosa and Finance Minister Nhlanhla Nene for “significant investment” to take place.
The DA’s spokesperson for Finance Alf Lees warned against “populist” policies such as expropriation of land and the Mining Charter being used to unite the ANC and “subdue investment”.
“The welfare of ordinary South Africans supersedes the ANC’s narrow party political interests”, Lees said in a statement on Saturday morning.* SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.