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A sign for Moody’s rating agency in front of the company headquarters in New York. Photo: Emmanuel Dunand \/ AFP<\/p>\n
According to the mood in South Africa right now, if you believe in the Tooth Fairy, the Easter Bunny and Father Christmas, then you probably also think that Moody\u2019s will not downgrade the country\u2019s sovereign credit rating when it makes its next pronouncement in March 2020.<\/p>\n
\nPerhaps this means that Mike van der Westhuizen, portfolio manager at wealth manager Citadel, is a true believer in the trio of all-time children\u2019s favourites. Because he\u2019s of the opinion that the seemingly forthcoming downgrade can be averted if the finance minister is able to show just enough fiscal consolidation.\u00a0<\/p>\n
But there is a spoiler alert: He believes this will only be a temporary delay and, irrespective of what Tito Mboweni says in his Budget Speech to Parliament on 26 February, the Moody\u2019s downgrade will hit us in late-2020, probably after the next Mid-Term Budget Policy Statement (MTBPS).<\/p>\n
Moody\u2019s felt it was too early to judge reforms<\/strong> in January<\/strong><\/p>\n
\u201cOn 28 January 2020, Moody\u2019s Investors Service analysts noted that it was ‘a bit early’ to judge the impact of both policy and structural reforms. Lucie Villa, Moody\u2019s lead sovereign analyst for South Africa, told Bloomberg<\/em> that while the data was not pointing to either a particularly positive or negative direction, \u2018there is nothing really to flag for the time being\u2019,\u201d Van der Westhuizen observed.<\/p>\n
\n\u201cCertainly, everyone expects this Budget to be poor, but [the government] might manage to demonstrate the will to cut expenditure and show just enough fiscal consolidation and, in that case, Moody\u2019s might delay any decision until November.\u201d<\/p>\n
The urgent need is to rein in the budget deficit<\/strong><\/p>\n
\nVan der Westhuizen said the main thing to look at, given that the Moody\u2019s vultures are circling, is the need to rein in the budget deficit, which is starting to get even more out of control.<\/p>\n
\nHe explained that in the 2019 MTBPS, the Treasury had projected the consolidated budget deficit at 5.9% of GDP, averaging 6.2% of GDP over the next three years.<\/p>\n
\u201cA low growth, low inflation environment also affects the debt-to-GDP trajectory, the sustainability of which Mboweni has already warned about. As a proportion of South Africa\u2019s GDP, the MTBPS notes a hike in gross debt from 56.7% in 2018-19, to 60.8% in 2020-2021 and 71.3% in 2022-23 if the status quo does not change, something the ratings agencies are understandably concerned about,\u201d Van der Westhuizen noted.<\/p>\n
Too many stakeholders not cooperating with Treasury<\/strong><\/p>\n
\u201cThese numbers show that the previous goal of fiscal consolidation is currently not going according to plan. Although it must be said that, while Treasury appears to be doing everything in its power to stop the slow bleed, it\u2019s coming down to a cooperation issue with the rest of government and other influential stakeholders.\u201d<\/p>\n
\nVan der Westhuizen said he believed the disconnect between what needs to happen, and the disinclination within government to act, is likely to come through when Mboweni\u2019s National Budget is revealed.<\/p>\n","protected":false},"excerpt":{"rendered":"
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