Sona was sketchy on concrete policy steps, warns rating agency

President Cyril Ramaphosa delivers the state of the nation address in parliament on February 8 2019. Picture: GCIS
President Cyril Ramaphosa delivers the state of the nation address in parliament on February 8 2019. Picture: GCIS

Credit rating agency Moody’s Investors Service has warned that the state of the nation address delivered by President Cyril Ramaphosa last week was short on concrete policy measures.

“The speech confirmed the government’s commitment to its policy agenda of reviving growth and job creation, relying on traditional policies to foster investment and increase competition,” Moody's said in an e-mailed note on Monday. 

“However, it did not give great details about how this would be achieved.”

Moody’s said that aside from the proposals to reduce financial stress at embattled power utility Eskom, which included financial support from the government and splitting the entity into three, Ramaphosa’s speech “offered few concrete measures to overcome these structural challenges in the face of entrenched vested interests”.

Financial support to Eskom along with measures to stabilise its financial health would be credit neutral, Moody’s said.

However, financial support followed by measures aimed at generating savings at Eskom much later would be credit negative for SA.

Ramaphosa’s address touched on revitalising growth, reducing socioeconomic inequalities, addressing state capture and dealing with weak state-owned enterprises, “all of which are well-identified credit weakness”, Moody’s said.

It said investment will remain constrained by the structural rigidities in the labour market and the impact of corruption. While, SA’s growth potential should rise marginally, Moody’s does not expect a significant acceleration in growth in the next few years.

The rating agency’s note comes ahead of the budget policy statement next week, which could decide SA’s fate with the credit rating agency.

Moody’s warned that reviving the economy and addressing socioeconomic inequalities will add to spending pressures, “highlighting the challenging balance between economic objectives and fiscal discipline”.

Moody’s is the last of the three credit rating agencies that has SA above sub-investment grade. In 2018, Moody’s left SA’s outlook at Baa3, one notch above junk status, with a stable outlook, “reflecting our view that the previous weakening of the sovereign’s institutions would gradually reverse under a more transparent and predictable policy framework”.