South Africa’s credit rating: no grounds for complacency - IOL

Mar 26, 2018
26 March 2018 - Relief was palpable across South Africa when Moody’s announced that it was maintaining South Africa’s credit rating at investment grade.


By Terence Corrigan 

Relief was palpable across South Africa when Moody’s announced that it was maintaining South Africa’s credit rating at investment grade.

Reactions of social media in particular have taken this to mean an indifference to government’s more contentious plans, notably introducing a regime of expropriation without compensation.

One Twitter user’s comment was typical: ‘Moody’s doesn’t seem concerned about EWOC. Land appropriation is not listed as a risk. They acknowledge that it’s long-standing ANC policy.’

This would be a misreading of what has taken place. Ratings agencies conduct regular reviews; Moody’s’ last review was in November 2017. They attempt to factor in a range of variables and developments – over both short and long-term horizons – germane to countries’ credit worthiness.

Moody’s has made it clear that it views South Africa’s change in leadership as a positive development, offering prospects for dealing with governance pathologies and setting the country on a growth trajectory, as well as evidence of a strategy to deal with the country’s fiscal challenges. At present, Expropriation without Compensation has not been confirmed as policy, and as such does not feature prominently in the current review.

However, Moody’s notes clearly that challenges remain. Among these, it explicitly lists Expropriation without Compensation and the Mining Charter: ‘How the government acts will also provide important insights into how it plans to balance nearer-term economic objectives (to sustain confidence and promote investment) against longer-term social and economic objectives (to address unemployment, inequality and poverty).’

It goes on to say that its outlook reflects two possible but competing visions of the future. Neither is an inevitability. The trajectory of policy could alter their assessment of South Africa in short order.

It is highly unlikely that a growth- and investment-destroying measure like Expropriation without Compensation (used on the scale that some politicians seem eager to do) would not have deleterious consequences for South Africa’s global economic standing. Fortunately, if good sense prevails, it’s something that South Africa will not have to face.

* Terence Corrigan is the Project Manager at Institute of Race Relations, a think tank that promotes political and economic freedom. 

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