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Gordhan’s road show is ‘too little, too late’

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Pravin Gordhan
Pravin Gordhan

Finance Minister Pravin Gordhan’s road show to the US and UK this week to reassure the markets may be “too little, too late” to avert a credit rating downgrade, say economists.

Highlighting the importance of maintaining investment grade status, Gordhan skipped Parliament’s budget debate last week and took a group made up of unionists, CEOs of top South African companies and senior Treasury officials to sell South Africa’s story that the country was still a good place to invest.

Colen Garrow, an economist at Lefika Securities, said the markets were already operating with the view that the move this week by Moody’s Investors Service to place the government’s credit rating under review would result in a downgrade.

Moody’s cited “continuing rise in risks to the country’s medium-term economic prospects and to its fiscal strength” as one of the reasons it placed South Africa on review.

Moody’s also noted that with its economy “vulnerable” to poor global, regional, domestic and financial market dynamics, this may have negative implications for government revenue, the fiscal balance and the government’s debt burden.

Garrow said: “Putting aside the emotions of whether we should maintain our rating, market fundamentals are strong that there’s a better-than-even chance we get downgraded by Moody’s and Standard & Poor’s (S&P).

“South Africa’s fiscal slippage has happened over too many years to avert what is now inevitable. It may just be too little, too late, and it’s very unfortunate.

“If we had started turning the economy around a couple of years ago and seen the same talk that came out of this budget, then we could have avoided it,” he added.

Econometrix economist Azar Jammine blamed President Jacob Zuma for the country’s woes and did not believe South Africa would avert a downgrade.

“The chances are more than 50% we won’t be able to retain our existing rating. Both Moody’s and S&P have put us on negative rating and there is nothing as yet to make them rescind their threat – in particular because, unfortunately, as much as they may admire Gordhan and have confidence in Treasury, there has been a lot of perception that Treasury has been undermined by Zuma,” said Jammine.

He said Zuma’s comments, a day before the budget, that Des van Rooyen was better qualified than Gordhan, and the spat with SA Revenue Service commissioner Tom Moyane, showed Moyane as a “Zuma man” being used to undermine Gordhan.

“I find it very difficult to see agencies being swayed. Agencies want higher economic growth as a means of increasing revenue, and reduction in budget, and that’s impossible. For as long as Zuma is in office, the sentiment will remain.

“It will probably diminish enormously if Zuma were to be recalled,” said Jammine.

Gordhan’s move to woo US- and UK-based investors was also unlikely to tip the scales in favour of South Africa, whose allies – Brazil and Russia at Brics (Brazil, Russia, India, China and South Africa) – were also going through tough economic times.

“Moody’s and S&P assess South Africa in terms of the likelihood to default on its debt, and we’re sitting very uncomfortably between Brazil, which is worse, and Russia, which is better. These are countries most likely to default on their debt,” said Garrow.

Gordhan visited investors in Boston, New York and London. Some who attended the meeting, according to Reuters, said Gordhan faced a volley of questions about Nhlanhla Nene’s axing as finance minister by Zuma, which saw bonds and the rand weaken.

Gordhan said the review by Moody’s, which will visit South Africa this week for an assessment, was a chance to show the country’s resilience. “This is an opportunity for South Africa to demonstrate that we are resilient. We do have a story to tell. We have gone through a tough time, but we have a plan to get out of it,” he said.

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