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Tito Mboweni makes regaining SA’s investment grade rating a top priority

03 December 2018 - 09:55 By Erik Schatzker and Amogelang Mbatha and Andres Martinez
Finance minister Tito Mboweni. Picture: ESA ALEXANDER
Finance minister Tito Mboweni. Picture: ESA ALEXANDER

The downgrading of SA’s investment status to junk during the Zuma years is the albatross the finance minister is determined to shed

The government was prioritising regaining an investment grade rating on its debt as part of its plans to revive a stagnant economy, finance minister Tito Mboweni said at the weekend.

Moody’s Investors Service is the only one of the three major credit-rating agencies that still assesses SA’s debt at investment grade. S&P Global Ratings and Fitch Ratings cut their ratings to junk during former president Jacob Zuma’s tenure, which was characterised by political uncertainty due to  cabinet reshuffles and corruption scandals.

“It’s priority number one because we have to get out of the status that we are in and back to proper investment grading, and we are working hard at this,” Mboweni said in an interview with Bloomberg TV on the sidelines of the G-20 meeting in Argentina on Saturday.

“The change will happen because of the things that we need to do ourselves.”

Mboweni also said he believed Eskom should rely on bond markets to raise the funds it needs rather than expecting bailouts from the government.

Eskom’s debt has soared to R419bn, while sales volumes have dropped as businesses and residential consumers go off the grid because of unreliable supply and rising costs. Eskom began imposing rotating power cuts last week as inadequate spending on maintenance has reduced the ability of its power plants to generate electricity. It has also run low on coal, from which it produces most of its power.

While Mboweni said he was not sure how long it would take to recover investment grade status, the main focus for government had to be on enhancing policy certainty and credibility, lowering debt and showing restraint in fiscal support for struggling state-owned companies.

“We need to demonstrate action around the fiscal stance and the budget standpoint of SA and show that we are taking steps to reduce the debt that is accumulating,” Mboweni said.

“We need to take serious steps to show that we are moving to restructuring the economy and reigniting growth.”

Credit ratings agencies have flagged slow economic growth,embattled state companies and high debt levels as key risks to the country’s debt rating. Mboweni slashed economic growth forecasts in half for 2018 to 0.7% in his maiden mid-term budget policy statement in October, after the economy plunged into recession in the first half of the year. He also said government debt would peak later and at higher levels than previously expected.

GDP has not expanded at more than 2% annually since 2013 and unemployment is at 27.5%.

“When we do these practical things, I think the ratings agencies will look at us and say these folks are back in business,” Mboweni said.

While ratings agencies have flagged Eskom as a key risk to the economy, the utility, which sold $1.5bn of eurobonds in August, tapping international markets for the first time in more than three years, is still a strategic and productive asset, according to Mboweni.

“They have got bonds so they can approach the markets, as long as they use (the) cash so raised in a productive and fiscally responsible manner,” he said.