Business Unity South Africa President Sipho Pityana is “alarmed – but not surprised” by the announcement that ratings agency Moody’s has lowered its outlook on SA’s credit rating from stable to negative.
“Business has been saying for months that we need drastic and fundamental action on key economic issues – now it has been confirmed that the lack of action is taking us down an increasingly slippery slope,” he said.
“Moody’s has rightly pointed out that government has to get its house in order, and if it doesn’t, our investment rating will be cut to junk. And we all know what that means: our economy will slide even further, we will no longer be able to borrow ourselves out of debt, and the entire economic system starts to unravel.
“This development also, unfortunately, revives the conversation about the possibility of a bail-out from an entity like the IMF — and punishing austerity measures, which we have warned about in the past, that would have drastic consequences on our nation.”
Pityana said Moody’s has effectively given government 18 months to get its order. “But we can’t even wait that long, as a country. We need urgent and effective interventions to cut public debt, rein in state-owned companies and revive economic growth.”
He described the Moody’s decision as “confirmation of BUSA’s concern, as South Africa’s apex business organisation, that Finance Minister Tito Mboweni’s Medium Term Budget Policy Statement (MTBPS) earlier this week had fallen far short of what was needed”.
“Between now and the Budget statement next February, we will have to see clear leadership from President Cyril Ramaphosa in dealing with the economic fundamentals. This is the biggest priority he faces now and will have to rise to the occasion.”
Pityana said it was “patently obvious” that tough political decisions need to be taken to arrest the deterioration in South Africa’s finances.
“This means greater fiscal consolidation – in particular, curbing public expenditure and stopping the bleeding at SOCs — and serious interventions to revive the economy. This is obviously going to be made even harder by the consistently negative ratings from all the agencies – so funding the debt mountain at SOCs is going to become even more expensive.
“It’s a virtuous circle that can only be broken by some fundamental decisions about the future of SOCs in particular.”
Pityana said Moody’s had also correctly pointed out the negative consequences of a lack of common purpose among key stakeholders.
“Moodys is spot-on when it highlights that resistance to reforms from key stakeholders is limiting government’s room to adopt and implement structural reforms”, Pityana said.
“We need to cut through the grandstanding and posturing, make the necessary compromises, and deal with these issues once and for all. Otherwise we may not have an economy to talk about.”