‘The announcement by President Cyril Ramaphosa of a drastic lockdown in SA 21 days to combat Covid-19 for comes at the right time and is based on the successful experience of other countries in this regard.” This is according to Professor Raymond Parsons, economist at NWU Business School.
“It is an timeous, data-driven and proportionate response by government and this step must be seen in tandem with a range of key economic measures designed to soften the impact on SMMES and other vulnerable groups in SA’s society. It is therefore essential that these economic safety nets for groups at market risk be rolled out as soon as possible before their situations deteriorate beyond repair.”
Professor Parsons adds that it is imperative for all stakeholders to cooperate with the new regulations to maximize their success.
“No government other than the most repressive will believe it can keep the country on lockdown for months – and then the economic effects, despite the exemptions, become devastating.
“The bulk of the impact of Covida-19 on the economy will in any case be felt in 2Q 2020 and beyond, and South Africa is now likely to go see a significantly a negative growth rate for the year as a whole. So both macro and micro assistance measures are needed to support the SA economy
“It therefore suggests that Moody’s should now consider postponing any decision it may be contemplating to downgrade SA’s investments rating on March 27.”
Professor Parsons says there has been growing evidence that – given that Moody’s recently reduced its outlook for SA from stable to negative, its scepticism about the impact of the latest Budget, and cutting its SA 2020 growth forecast to 0.4% – the omens have not been good on what Moody’s might decide.
“The fact that the expected Moody’s decision may already be thought have been priced in to some extent in by the markets does not mean that SA would not benefit from a Moody’s breathing space. Why?
“It will be recalled that, in the event of Moody’s joining Standard & Poor and Fitch rating agencies in also downgrading SA to sub-level investment, it would trigger putting the economy into universal junk status, with various unwelcome economic consequences SA should rather avert. First prize would still be for SA to retain a general positive investment rating to facilitate access to certain future foreign loans and to enjoy lower borrowing costs. A negative decision by Moody’s would therefore come at a time when the SA economy is grappling with serious external and internal headwinds and does not need additional bad news if these are not absolutely necessary right now.”
Professor Parsons adds that the reasons for Moody’s to consider pressing the ‘pause’ button at this particular stage on any possible decision to cut SA’s investment rating now flow entirely from the recent dramatic impact of Covid-19 globally and on the SA economy:
“In the light of the above, Moody’s may well have already decided that, while leaving South Africa’s outlook on ‘negative’, it will postpone its decision on the investment rating on SA until the exogenous Covid-19 impact is clearer. The Sword of Damocles will still be there.
“But if Moody’s was to decide to nonetheless downgrade SA on March 27 it is hard to see how such a message will at this juncture help the country to meet the criteria for turning the SA economy around set by Moody’s itself. Their decision in current highly abnormal circumstances cannot be based on technicalities but on good judgement.”