Not minding all that has been said about the future of the South African economy and how important it is for all hands to be on deck to bring it back to its feet, an economist said the current South Africa’s junk status will last for not two, four, but for at least six years.
A lot has been predicted about what lies ahead concerning the state of the South African economy since it was downgraded to junk status and later recessed.
Lesiba Mothata who is the executive chief economist for Alexander Forbes Investment Solutions predicts that the South African credit rating which was downgraded earlier this year, would stay until 2023 but added that this wasn’t ‘the end of the world’ as there’s light at the end of the tunnel for the country.
SA’s credit ratings was downgraded to Junk status by three rating agencies after they expressing concern over the political upheavals, government debt, and in particular the sacking of Mr Gordhan and replacing him with Malusi Gigaba.
Speaking about people’s reaction to the announcements by Moodys and S&P rating agencies, Mothata said: “People ask if SA is more like Zimbabwe or more like Venezuela. Yet, we have seen the spectacular bond performance and globally it looks like there will be continued demand for emerging market debt.
“I am not saying there are no risks. There are, for instance, concerns about left leaning policy here.”
He said he is confident that South Africa can negotiate the current economic conditions, but they have to take advantage of growth in sub-Saharan Africa to help them restore confidence in the economy.
“Don’t have an exaggerated view of the downgrades or its economic outcome. I have a glass half full approach. SA policy error risks are substantial and it has become a confidence issue now. Yet, I believe SA can weather the storm.” he said, adding that it is likely that the economic status will receive a further downgrade in December, but urged people to keep a calmer perspective.
The economist, however, noted that the state-owned entities including the South African Airline (SAA) and Eskom, are causing the most stress to the economy as their ill performances undermined investor confidence.
Privatisation is, however, not the answer. Especially not for Eskom, who could “make electricity very expensive, he said.
Six years seems a long time to wait for economic improvement, but somehow, the rand has survived a barrage of setbacks in 2017. This is our biggest source of optimism.
Meanwhile, some analysts who have been exploring the long-term consequences of a credit downgrade for South Africa disagree with Finance Minister, Malusi Gigaba, that its effects will be minimal on ordinary citizens.
For the analysts, the down grade means that investors both domestic and foreign will require more in terms of interest. It also means that government will have less money to spend on basic services and yet our government has committed to a lot of basic services provision especially to the poor, which means in all likelihood taxes will go up; that means that inflation will go up. Interest rates aren’t going to come down, so you’ll continue to pay more on your credit card debt and car loans than you would have if we had a stable economy.
Downgrading SA to junk would increase South Africa’s debt-servicing costs, seen at R144-billion in the 2016/17 fiscal year. Thus, paying higher debt costs would mean less money for critical services such as housing, education and sanitation, which could incite more protests that have rocked towns across the country.