GNU Wins Major Dividend for SA’s People With S&P Credit Upgrade

That S&P Global Ratings has upgraded South Africa’s credit rating for the first time in nearly twenty years, citing better growth prospects, stronger revenue performance, and reduced strain from state owned enterprises, is a dividend arising directly from the Government of National Unity and shows how very successful South Africa might become the more the African National Congress (ANC) and the Democratic Alliance (DA) learn to work together.

The ratings agency lifted South Africa’s foreign currency rating from BB- to BB and the local currency rating from BB to BB+ plus, with a positive outlook. Ratings agencies assign credit scores to countries that work similarly to how a bank might rate the credit worthiness of an individual borrower. As the score improves the borrower can access funds at lower interest rates. For a country, being able to borrow more cost effectively means that its government can do more for its people in areas ranging from welfare provision to the expansion of infrastructure.

The upgrade comes after the excellent Medium Term Budget Policy Statement (MTBPS) of a week ago in which the Minister of Finance, Enoch Godongwana, set out a compelling case that South Africa has stabilised government debt levels and was well on track to rein in the budget deficit.

Ahead of that statement, Bheki Mahlobo, who is the economics and policy editor of this newspaper, had accurately called all the key numbers from that statement as well as predicting the ratings upgrade – which is exactly the quality of analysis and insight this newspaper looks to provide to its readers.

At its core the MTBPS reflected a message Nelson Mandela had issued to his party colleagues shortly after his release from prison that the fiscal mess they were inheriting from the last apartheid era administration was so serious that without dramatic measures to rein in debt and the deficit South Africa would find itself with begging bowl in hand standing at the doors of the World Bank and the International Monetary Fund. The result, Mr Mandela explained, would be the loss of sovereignty with the budget speech being dictated from Washington.

As a consequence the new ANC government adopted a strategy that cut South Africa’s debt levels in half in the first thirteen years after 1994 whilst recording the first multi-year budget surpluses since the formation of the Union of South Africa in 1910.

As debt fell so did interest payments. In 1994 the government was spending almost 20 cents of every rand on debt servicing costs. By 2007 that was down to just over 5 cents. The saving was directed towards service delivery and social welfare spending delivering a vast living standards dividend to millions of poor people. Reducing the debt burden also lowered the risk premium on South Africa which meant that interest rates dropped boosting the spending power and living standards of households while allowing businesses access to cheaper capital with which to expand their operations and, most important of all, create jobs. All of this saw ANC support lift strongly between the 1994 and 2004 elections.

It is economically (and politically) illiterate therefore to say, as both the South African Communist Party (SACP) and the Congress of South African Trade Unions (COSATU) have done in recent days, that the MTBPS amounted to an austerity focused attack on the poor. Exactly the opposite is true. The period from 2008 to today, that had seen the government following the thinking proposed by the communists and their trade union ally, had seen the debt service costs rise back to around 20 cents per rand which crowded out welfare, service delivery, and infrastructure expenditure. The consequences led directly to the ANC losing power last year.

The ANC is right to welcome S&P Global Ratings’ upgrade of South Africa’s sovereign credit ratings after the MTBPS. And it was exactly right to say that the upgrade amounted to an endorsement of the government’s efforts to stabilise the economy, improve fiscal management, and repair key network industries.

That the DA welcomed the upgrade in virtually identical terms is to show how well the two GNU partners can work together and how very successful South Africa will become the more they continue to do so.