Don't relax yet, business leaders warn after Moody's breather

Lameez Omarjee

Moody's decision not to update its ratings on South Africa's sovereign debt is a reminder of government's urgent tasks that lie ahead, the CEO Initiative has said.

The rating remains unchanged at Baa3, the last rung of investment grade, with a stable outlook. No reasons were given for the decision not to update the assessment.

Moody’s is the only major rating agency that rates South Africa’s sovereign debt at investment grade.

A downgrade to junk status by Moody’s would have triggered SA’s exclusion from the Citi World Government Bond Index and projected capital outflows of hundreds of billions of rands. 

In a statement on Saturday, the CEO Initiative said the reprieve would provide government and its partners with a "final opportunity" before the next ratings review to implement "vital structural reforms" the country needs to achieve sustainable inclusive growth.

"While we welcome this decision, it is also a reminder of the urgent task ahead for government and its social partners to work relentlessly on avoiding any further downgrades in our credit ratings," said Jabu Mabuza, co-convenor of the CEO Initiative. 

"We reiterate that no good can come from a downgrade to junk status, as it will inevitably make life more expensive for all South Africans.

"We need to see an accelerated focus on implementing the necessary reforms that are needed for our key institutions and entities to operate at optimal levels again, alongside clear efforts to promote the ease of doing business and investment in order to stimulate economic growth."

Capital outflows as a result of a downgrade would be particularly worrisome at a time when the country needs capital to boost growth and jobs, the initiative added.

Key reforms

Mabuza flagged the country's deteriorating fiscal position, as well as the operational and fiscal challenges faced by power utility Eskom, as key concerns, endorsing plans for its restructuring.

"We recognise that the damage to Eskom runs deep and is the result of years of mismanagement, and therefore we look to the management team to implement bold action with the utmost urgency."

The initiative also called for reducing the size of Cabinet and the public sector wage bill; ensuring the implementation of more stringent conditions regarding the distribution of additional support to state-owned enterprises;

and "drastically reducing unnecessary bureaucracy that hinders the ease of doing business".

Hard decisions, quick wins

Echoing these sentiments was the Banking Association South Africa, which said the country now had "breathing room" to take "hard decisions" about structural changes needed to boost growth.

The Banking Association slammed the "perilously slow pace" at which economic reforms were moving, given the country's levels of unemployment, poverty and inequality.

Among other reforms, the association called for reforms reducing the cost of doing business, especially for small businesses; improved efficiency and accountability in public service; efficient and affordable development of key business infrastructure; and greater policy certainty and decisive political leadership to deal with what they called an "economic logjam".

These are "quick wins" that can make a rapid improvement, the Banking Association said.

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