The latest decisions by both Fitch and Moody’s to cut South Africa’s investment grade rating further into junk status are not good news for the South Africa economy.

Prof Raymond Parsons, economist at the North-West University (NWU) Business School, says it again highlights the urgent need for South Africa to change its economic narrative.

“Although Standard and Poor’s have kept their investment outlook as neutral for now, the fact remains that, overall, this is South Africa’s worst rating ever, complicated by Covid-19. These ratings again confirm the seriousness of the growth and fiscal risks faced by the economy. It also puts the right fiscal mix in the main Budget next February into even sharper focus.”

Prof Parsons says what emerges again from much of the agencies’ latest analysis is that, while it acknowledges the importance of the new Economic Reconstruction and Recovery Plan (ERRP) and the recent Medium-Term Budget Policy Statement (MTBPS), there is a “credibility gap” with regard to whether these policies and projects will be adequately implemented.

“Implementation risks are seen to be rising. A lack of confidence exists as to whether the tough decisions, such as on the containment of the troublesome public sector wage bill, will indeed be made in order to help stabilise South Africa’s public finances.”

Prof Parsons says the strong message from the latest agency assessments therefore is that, in getting its economic house in order, South Africa needs to urgently build more confidence in its ability to deliver on what has been decided on the growth and fiscal fronts.

“In charting a course towards renewed growth and fiscal sustainability, the sooner a firm sense of economic direction can be consolidated, the better the prospects are for boosting investor confidence, achieving job-rich growth, and eventually regaining investment grade status.”