Johannesburg — A FEW weeks ago, I raised the question of whether SA's credit rating should bynow have been downgraded. However much we hope it won't be, we cannot escape the possibility that the objective conditions will require a downgrade by the ratings agencies some time soon. The market is certainly pointing that way, since bond yield premiums between developing countries as a whole and US treasuries have just totally blown out. Incredibly, this premium almost disappeared a year ago.
The first point to note is that given the current reputation of the rating agencies, theoretically, we shouldn't have to worry that much. Massive companies, Lehman Brothers, Fannie Mae, Freddie Mac, and the municipal bond guarantors Ambac Financial and MBIA all had triple-A ratings, and they are all now parrots.
But for SA, the situation is tougher because our infrastructure spend means borrowing, and foreign borrowing in particular, will have to go up.
Furthermore, the fiscal deficit means the overall borrowing requirement has increased.
Brait economist Colen Garrow has done a peer group comparison of BBB countries, which pans out this way: In general, comparing government debt as percentage of gross domestic product (GDP), SA is in line with the BBB average. But looking forward, it falls below average during the 2008-11 period.
On a current account balance, SA is way behind median BBB and is heading south. On the crucial issue of real GDP growth, SA was dead on median BBB, but will fall below going into the future.
Rating agencies don't like to downgrade, particularly developing countries, because the act itself seems to play an abnormally large role in compounding the problems for the developing countries concerned -- which are also often their clients. But the counter argument is that if you have a temperature, you shouldn't blame the thermometer.
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