Justin Brown
THE RISK of South Africa losing its investment grade credit rating status was some way off and the country could hold this status until at least 2017 or 2018, Nomura International economist Peter Montalto said in an interview last week.
“The agencies are giving the benefit of the doubt to the government around the fiscal side and around the optimism and hope that the agencies still have. That started with the National Development Plan (NDP). The agencies all jumped on it and said it was a marvellous document for South Africa. Now they have abandoned that idea,” he added.
“So for me you can only get downgrades to junk after 2017. For now things are going to bumble along,” Montalto said.
The year of 2017 is a key year as it is when the new round of ANC elections will be taking place and it is likely to herald a new party leader.
President Jacob Zuma’s successor will probably be voted into the position of party president at this conference.
“You’ll get a downgrade when growth doesn’t pick up and when there has not been any policy change. It is still a long-run story for downgrades into junk. South Africa is likely to hold on by its finger nails given the credibility of the National Treasury and the SA Reserve Bank. Debt levels are moderately low,” Montalto said.
“We haven’t seen an erosion of the courts, the rule of law and contracts. Agencies are going to get worried when countries can’t pick up job creation and then start to think about social cohesion. We are not quite at that stage yet. The ANC also has to maintain its equilibrium between social benefit payments and very good expansion of housing. That equilibrium is still there so the agencies are not worried about ‘Arab Spring’ or the rest of it,” he added.
“If we are still averaging 100 000 jobs a quarter in 2017 or 2018 (then a downgrade would be on the cards).”
Regarding social grants, Montalto said these had played a role in reducing inequality.
“It has been a moderately good way for financial inclusion. The problem is that it is also a political tool. As we move toward 2017 and 2019 there is talk of extending the grants to 21-year olds. Even though social grants have been successful, I think it sometimes veers into the wrong place. Grant payments should be irrelevant, in the long run the government should be thinking how they should be getting people off grant payments,” he added.