AS ratings agencies brood over whether or not they should cut South Africa’s credit ratings to ‘junk’, economist Dr Roelof Botha urges agencies to keep their hands off the guillotine.
Speaking at the PwC ‘Closing the Gap’ talk in Richards Bay on Thursday, Botha said Fitch Ratings, Moody’s and Standard & Poor’s (S&P) must ‘do their homework’ before downgrading SA from its current ‘stable’ BBB ranking.
The country is presently graded just above the ‘investment grade’ bottom line and one notch down will drop it into the unfavourable ‘speculative’ zone – sure to avert potential investors.
Botha highlighted that according to the International Monetary Fund (IMF) and National Treasury, SA’s gross public debt-to-GDP ratios are significantly lower than that of Germany (AAA), England (AAA) and the United States (AA+).
‘Our debt is actually low in comparison to the rest of the world,’ said Botha.
‘We do not have a huge fiscal instability issue, despite what people say. I expect growth this year, and more growth next year.
‘There are red flags, but I am confident we can make it.’
Finance Minister Nhlanhla Nene now only has three months to demonstrate that the newly implemented budget plan will successfully slash the exorbitant public sector wage bill, decrease spending and raise taxes to retain its rating.
Rating agencies will review SA in June.
Overview
‘Overall, we have serious obstacles – most importantly the energy crisis,’ said Botha.
‘And too many regulations are risky issues for investors. Government must make it easier for investors to employ people.
‘But our banking sector’s stability is stupendous, ranked 6th in the world.
‘Inflation will stay below 4% this year and our stock exchange will remain strong for the next five years.’
How SA ranks in the world
SA is positioned the lowest out of 144 countries worldwide in the following 10 areas:
• Cooperation in labour-employment relations (144)
• Hiring and firing practices (143)
• HIV prevalence (140)
• Quality of the educational system (140)
• Flexibility of wage determination (139)
• Pay and productivity (136)
• Business costs of crime and violence (133)
• Life expectancy (129)
• Burden of government regulation (120)
• Favouritism in decisions by government officials (104)
On the flip side, SA tops the global charts in:
• Regulation of securities exchange (1)
• Auditing and reporting standards (1)
• Efficacy of corporate boards (3)
• Soundness of banks (6)
• Availability of financial services (6)
• Efficiency of legal framework (9)
• Strength of investor protection (10)
• Quality of air transport infrastructure (11)
• Quality of management schools (24)
• Domestic market size (24)
