While it is unclear if the Treasury had any representatives at the Moody’s Investors Service conference in Sandton on Tuesday, they would have broadly welcomed what was said.
It singled out the lack of visible progress in presenting a plan for Eskom, which has long been described as the single most important risk for the economy. This is a refreshingly open-minded approach to the social and political constraints to speedy reform, for which it has been criticised by those who think it has been too lenient on SA.
However, Moody’s did raise red flags: Eskom, debt and growth. It singled out the lack of visible progress in presenting a plan for Eskom, which has long been described as the single most important risk for the economy. While the need to recapitalise and restructure Eskom is urgent, there was a recognition that politics — due to the fact that the utility is a big employer in a country with a jobless rate of almost 30% — would make it a difficult process.
An increase in borrowing and a reduction in growth forecasts do not make for a reassuring combination. They add to the sense that things will get worse before they get better, a concern that has also been reflected in local business being more vocal in demanding more action by the government to improve the investment climate.The extent to which a Moody’s downgrade, if or when it does occur, will hurt the country’s assets is unclear.
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