According to renowned economist Prof Raymond Parsons from the North-West University’s (NWU’s) Business School, it is Moody’s next assessment of South Africa and not Standard and Poor’s (S&P’s) rating which holds the key to South Africa’s continued avoidance of universal junk status.
He says the decision by ratings agency S&P to leave South Africa's sovereign credit rating unchanged was broadly expected by analysts.
While recognising recent political changes, a better economic outlook and incipient socio-economic reform, S&P says South Africa still faces considerable economic and social challenges. In its reaction to S&P, the National Treasury has rightly said that ultimately restoring the country's investment rating remains a top priority and that it will engage with the agency on its concerns.
“The announcement by S&P is nonetheless a reminder that, if linked with the previous decision by Moody's in March, to retain its more positive investment rating and raise its outlook from negative to stable, South Africa therefore continues to avoid universal junk status. It requires an investment downgrade by the three major credit rating agencies to precipitate overall junk status with its negative consequences.”
Prof Parsons says South Africa therefore still has extra time to implement the necessary reforms and rebuild investor confidence. “There remains a formidable national agenda. The single most important challenge remains to turn the economy around and get both the economic growth rate as well as the per capita income to much higher levels. This will require growth rates beyond 2% in the years ahead, especially if high unemployment is to be reduced.
“What matters now is the next periodic evaluation of South Africa by Moody's, which usually tends to be more optimistic. It is therefore Moody's which holds the key to South Africa's continued avoidance of universal junk status.”
In their March analysis Moody's was of the view that the deterioration in South Africa's institutions would gradually be reversed under the more transparent and predictable policy framework of President Cyril Ramaphosa.
