The decision by Moody’s ratings agency not to review South Africa’s credit rating gives the country breathing room to fix the fiscus and take hard decisions about the structural changes needed to create an environment for investment and inclusive economic growth.
While the government is doing much to restore leadership and good governance in key state institutions, economic reforms are moving at a perilously slow pace, given the unsustainable levels of unemployment, poverty and inequality in the country. South Africa must urgently:
These are among the ‘quick wins’ that can help to make South Africa a destination for foreign direct investment. We can no longer afford to delay implementing reforms necessary for inclusive growth and job creation.
The alternatives are dire. The credit rating of banks is linked to that of the country. Banks raise funds from domestic and international markets for the sustainable infrastructure projects and commercial business ventures that are necessary for inclusive economic growth. If South Africa is downgraded to ‘junk’ status by all the major rating agencies, the increased cost of credit will curtail private sector investment and the government’s ability to provide essential social services.
Continued weak economic growth remains the greatest threat to South Africa’s credit rating. The South African Reserve Bank predicts tepid growth, of well under two percent, until 2020. This can only change if government acts decisively now. No matter the coming election, if we continue to squander economic opportunities because of narrow political interests, South Africa will not be in any better position when the next credit rating review rolls around, later this year.