economic policy

The last of the big 3 credit rating agencies junks South Africa – now what?

The core function of a credit rating is to indicate the degree of credit-worthiness of an issuer of debt instruments, be it a country, city or company. It is an analytical assessment of the ability of the entity to honour its debt obligations.

However, credit ratings have become a proxy of economic success, or even national worth. They are baked into so many criteria, including in mandates for investors who seek to invest in assets other than debt instruments (such as a filter for countries whose equity markets to invest in).

It doesn’t have to be this way. In the aftermath of the global financial crisis, competition authorities and global bodies such as the IMF and EU encouraged the investment community not to ‘hardwire’ credit ratings in their buy and sell mandates, but to consider these as just one input into decision-making.

Nonetheless, an investment grade rating is not only a useful decision metric, but it is seen as a badge of honour.

South Africa, by 2005, held an investment grade rating at all three majors (S&P, Fitch and Moody’s).

And yet, if we take such a rating in its expanded meaning, as an indicator of success, do we belong in this club?

In 2016, writing in the Business Day, I argued that:

The trouble is that macroeconomic stability is only part of the puzzle when it comes to economic success. The countries that top the charts…have done far more than draft good budgets or raise interest rates timeously to earn their renown. Countries such as Norway, Germany and South Korea are also known for their high levels of productivity, their innovation as well as their competitiveness.

Here, I’d like to view this issue through the lens of human development. One internationally comparable measure is the Human Development Index. The HDI is an index that measures three dimensions of human development:

  • a long and healthy life – measured by life expectancy,
  • access to education – measured by expected years of schooling of children at school-entry age and mean years of schooling of the adult population,
  • a decent standard of living – measured by Gross National Income per capita adjusted for the price level of the country

Here’s how South Africa ranks compared to all 189 countries assessed by the UN. Each line represents a country.

Figure 1: Human development index – all countries ranked by the UN

(When this score is adjusted for inequality, South Africa ranks much lower.)

Let’s take the same index, but for countries that are ranked investment grade by at least 2/3 of S&P, Moody’s and Fitch.

Figure 2: Human development index – investment grade countries

Of all countries ranked investment grade, South Africa has a higher HDI index than only 2 countries – Morocco and India, and is close to Indonesia (Figure 2, 3).

The countries with scores below or close to South Africa have also had such steep improvements in their score over the past 3 decades, beginning far lower than us. This suggests real dynamism in those countries, whereas South Africa has been, in relative terms, stagnant.

Figure 3: Human development ranking – investment grade countries

Make no mistake. Sovereign ratings matter. But was ours a case of ‘fake it till you make it’? It will be an arduous road to belong to this club again. But this time, it’s important to take care of the fundamentals and to pay attention to human development.

There’s no modern investment case without a human capability underpinning.

Though these are not metrics that credit rating agencies consider, at least not directly, they underpin sustainable and resilient growth. Indeed, this is not to say that South Africa can’t regain its investment grade status whilst remaining a development outlier like India or Morocco. The point is that a particular notch on the credit rating scale is not, in of itself, the ultimate goal.

We should always have the stars in our sights, but for the most part, we’re still trying to get to Mamelodi, as the song by Lady Zamar and Junior Taurus goes.

How do we overcome this difficult moment, not just the expected blow by a rating agency, but against the context of a global pandemic? In the short term, energy will be focused on the fall-out from covid-19. We are still in the first phase of our economic response. A thoroughgoing response, which draws on more measures to support a wider set of households, including the most vulnerable or precarious, will test our fiscal metrics severely.

We also need to think deeply about driving structural change that delivers inclusive growth.

Have the credit rating agencies not made this point many times themselves?

Had they not warned us that prevailing socio-economic conditions, and the resultant political economy dynamics, will pose a threat to economic sustainability?

If I were to summarise the current administration’s policy stance, I would say that it is animated by the following economic growth themes:

  1. Performance-based industrial policy: much work has been underway to implementing sectoral ‘Masterplans’ in collaboration with the private sector, to support value-added activities in identified sectors. There’s also an established programme to lower the cost of doing business that would benefit all sectors of the economy.
  2. Promoting labour-intensive sectors: deepening economic activity in sectors with the prospect to create jobs on a significant scale that talk to the country’s skills profile, particularly in tourism and agro-processing.
  3. Targeted investment mobilisation: to stimulate and drive investment with a focus on fixed investment and infrastructure development; by functioning and rehabilitated SOEs, the domestic private sector and foreign direct investment.
  4. African integration and economic development: an investment-led trade strategy, which is based on deepening trade whilst supporting industrialisation and infrastructure development on our continent. Key opportunities include deepening trade within SADC, but also with West and North Africa by growing exports in key value added manufacturing and service sectors.
  5. Progressively greening the economy: through a pragmatic process of developing new value chains such as adding value to materials of the future required for cleaner tech (platinum, rhodium, vanadium, manganese, green jet fuel); developing the waste economy; tapping into climate finance sources and adopting circular economy principles. This involves developing new industries but also embedding a less emission-intensive way of doing business across the economy. This a growth opportunity but also comes with a great deal of risk of transitioning from one set of certain activities to uncharted waters.
  6. Harnessing the digital economy: this also involves supporting new industries but also enhancing efficiency and productivity by rethinking existing activities (smarter and safer mining, digital medicine, connected classrooms etc.). This also presents an opportunity to use connectivity to overcome the spatial divide and reduce transaction costs in the economy.

These growth themes have to backed by practical actions informed by policy, be it releasing spectrum or reforming the electricity supply industry that powers the rest of the economy.

Across various sectors, economic actors can point to key decisions that need to be taken, or operationalised, to kick-start investment and production.

It’s no secret that this is not an insignificant backlog.

Before long, some creative ‘fastrack’ measures will need to be considered to tackle this policy overhang. If one were to find a silver lining in recent weeks, it is the agile and unconventional ways of working that government has adopted, in service of a common goal.

It goes without saying that these growth themes have to be adapted to a dramatically different local and global context. Labour intensity and trade integration are under threat in the short to medium term. On the other hand, the digital economy is under the spotlight as we try to sustain economic activity under conditions of restricted movement and new business models are widely adopted. But, taken together, with the necessary shifts in emphasis, these themes represent a shift from a resource-driven, emissions intensive economy with low levels of human capital development.

The twin shocks of covid-19 and the loss of the last golden star take us to unfamiliar waters when it comes to macroeconomic policy. The playbook to impress pre-covid-19 global economic orthodoxy – belt-tightening, a pruned state, financialisation – is invalidated by the demands and realities of crisis management and post-pandemic reconstruction.

Monetary policy is becoming activist as the situation demands. Fiscal policy will have to contend with social variables in a sharper way.

Even at this early stage, covid-19 has revealed what the HDI tries to quantify. The material conditions facing the majority of South African households – how they live, get to work, experience shocks – are not sustainable.

This is not to moralise misfortune like a medieval philosopher, but there are some important reflections that should arise from this global pandemic. With the economic fallout likely to be compounded by the decision by Moody’s, this moment demands a structural break with the past.

And what do the people say in Mamelodi?

Author: Trudi Makhaya

PDF version:


National Treasury response to Moody’s decision:

economic policy Notices

Extraordinary G20 Leaders’ Summit Statement on COVID-19

Statement by G20 Leaders, as accessed here:

The unprecedented COVID-19 pandemic is a powerful reminder of our interconnectedness and vulnerabilities. The virus respects no borders. Combatting this pandemic calls for a transparent, robust, coordinated, large-scale and science-based global response in the spirit of solidarity. We are strongly committed to presenting a united front against this common threat.

We are deeply saddened by the tragic loss of life and the suffering faced by people around the world. Tackling the pandemic and its intertwined health, social and economic impacts is our absolute priority. We express our gratitude and support to all frontline health workers as we continue to fight the pandemic.

The G20 is committed to do whatever it takes to overcome the pandemic, along with the World Health Organization (WHO), International Monetary Fund (IMF), World Bank Group (WBG), United Nations (UN), and other international organizations, working within their existing mandates. We are determined to spare no effort, both individually and collectively, to:

▪ Protect lives.

▪ Safeguard people’s jobs and incomes.

▪ Restore confidence, preserve financial stability, revive growth and recover stronger.

▪ Minimize disruptions to trade and global supply chains.

▪ Provide help to all countries in need of assistance.

▪ Coordinate on public health and financial measures.

Fighting the Pandemic

We commit to take all necessary health measures and seek to ensure adequate financing to contain the pandemic and protect people, especially the most vulnerable. We will share timely and transparent information; exchange epidemiological and clinical data; share materials necessary for research and development; and strengthen health systems globally, including through supporting the full implementation of the WHO International Health Regulations (IHR 2005). We will expand manufacturing capacity to meet the increasing needs for medical supplies and ensure these are made widely available, at an affordable price, on an equitable basis, where they are most needed and as quickly as possible. We stress the importance of responsible communication to the public during this global health crisis. We task our Health Ministers to meet as needed to share national best practices and develop a set of G20 urgent actions on jointly combatting the pandemic by their ministerial meeting in April.

We fully support and commit to further strengthen the WHO’s mandate in coordinating the international fight against the pandemic, including the protection of front-line health workers, delivery of medical supplies, especially diagnostic tools, treatments, medicines, and vaccines. We acknowledge the necessity of urgent short-term actions to step up the global efforts to fight the COVID-19 crisis. We will quickly work together and with stakeholders to close the financing gap in the WHO Strategic Preparedness and Response Plan. We further commit to provide immediate resources to the WHO’s COVID-19 Solidarity Response Fund, the Coalition for Epidemic Preparedness and Innovation (CEPI) and Gavi, the Vaccine Alliance, on a voluntary basis. We call upon all countries, international organizations, the private sector, philanthropies, and individuals to contribute to these efforts.

To safeguard the future, we commit to strengthen national, regional, and global capacities to respond to potential infectious disease outbreaks by substantially increasing our epidemic preparedness spending. This will enhance the protection of everyone, especially vulnerable groups that are disproportionately affected by infectious diseases.

We further commit to work together to increase research and development funding for vaccines and medicines, leverage digital technologies, and strengthen scientific international cooperation. We will bolster our coordination, including with the private sector, towards rapid development, manufacturing and distribution of diagnostics, antiviral medicines, and vaccines, adhering to the objectives of efficacy, safety, equity, accessibility, and affordability. We ask the WHO, in cooperation with relevant organizations, to assess gaps in pandemic preparedness and report to a joint meeting of Finance and Health Ministers in the coming months, with a view to establish a global initiative on pandemic preparedness and response. This initiative will capitalize on existing programs to align priorities in global preparedness and act as a universal, efficient, sustained funding and coordination platform to accelerate the development and delivery of vaccines, diagnostics and treatments.

Safeguarding the Global Economy

We commit to do whatever it takes and to use all available policy tools to minimize the economic and social damage from the pandemic, restore global growth, maintain market stability, and strengthen resilience.

We are currently undertaking immediate and vigorous measures to support our economies; protect workers, businesses—especially micro-, small and medium-sized enterprises—and the sectors most affected; and shield the vulnerable through adequate social protection. We are injecting over $5 trillion into the global economy, as part of targeted fiscal policy, economic measures, and guarantee schemes to counteract the social, economic and financial impacts of the pandemic.

We will continue to conduct bold and large-scale fiscal support. Collective G20 action will amplify its impact, ensure coherence, and harness synergies. The magnitude and scope of this response will get the global economy back on its feet and set a strong basis for the protection of jobs and the recovery of growth. We ask our Finance Ministers and Central Bank Governors to coordinate on a regular basis to develop a G20 action plan in response to COVID-19 and work closely with international organizations to swiftly deliver the appropriate international financial assistance.

We support the extraordinary measures taken by central banks consistent with their mandates. Central banks have acted to support the flow of credit to households and businesses, promote financial stability, and enhance liquidity in global markets. We welcome the extension of swap lines that our central banks have undertaken. We also support regulatory and supervisory measures taken to ensure that the financial system continues to support the economy and welcome the Financial Stability Board’s (FSB) announced coordination of such measures.

We also welcome the steps taken by the IMF and the WBG to support countries in need using all instruments to the fullest extent as part of a coordinated global response and ask them to regularly update the G20 on the impacts of the pandemic, their response, and policy recommendations. We will continue to address risks of debt vulnerabilities in low-income countries due to the pandemic. We also ask the International Labour Organization (ILO) and the Organisation for Economic Cooperation and Development (OECD) to monitor the pandemic’s impact on employment.

Addressing International Trade Disruptions

Consistent with the needs of our citizens, we will work to ensure the flow of vital medical supplies, critical agricultural products, and other goods and services across borders, and work to resolve disruptions to the global supply chains, to support the health and wellbeing of all people.

We commit to continue working together to facilitate international trade and coordinate responses in ways that avoid unnecessary interference with international traffic and trade. Emergency measures aimed at protecting health will be targeted, proportionate, transparent, and temporary. We task our Trade Ministers to assess the impact of the pandemic on trade.

We reiterate our goal to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open.

Enhancing Global Cooperation

We will work swiftly and decisively with the front-line international organizations, notably the WHO, IMF, WBG, and multilateral and regional development banks to deploy a robust, coherent, coordinated, and rapid financial package and to address any gaps in their toolkit. We stand ready to strengthen the global financial safety nets. We call upon all these organizations to further step up coordination of their actions, including with the private sector, to support emerging and developing countries facing the health, economic, and social shocks of COVID-19.

We are gravely concerned with the serious risks posed to all countries, particularly developing and least developed countries, and notably in Africa and small island states, where health systems and economies may be less able to cope with the challenge, as well as the particular risk faced by refugees and displaced persons. We consider that consolidating Africa’s health defense is a key for the resilience of global health. We will strengthen capacity building and technical assistance, especially to at-risk communities. We stand ready to mobilize development and humanitarian financing.

We task our top relevant officials to coordinate closely in support of the global efforts to counter the pandemic’s impacts, including through proportionate border management measures in accordance with national regulations and to provide assistance where necessary to repatriate citizens.

We value the efforts to safeguard our people’s health through the postponement of major public events, in particular the decision by the International Olympic Committee to reschedule the Olympic Games to a date no later than summer 2021. We commend Japan’s determination to host the Olympic and Paralympic Games Tokyo 2020 in their complete form as a symbol of human resilience.

We stand ready to react promptly and take any further action that may be required. We express our readiness to convene again as the situation requires. Global action, solidarity and international cooperation are more than ever necessary to address this pandemic. We are confident that, working closely together, we will overcome this. We will protect human life, restore global economic stability, and lay out solid foundations for strong, sustainable, balanced and inclusive growth.

President Cyril Ramaphosa’s remarks at the Summit can be accessed here:

This pandemic is going to worsen the economic situations of many African economies. It will reverse the gains that many countries have made in recent years. 

We need to ensure trade and investment flows are not adversely disrupted.

At the continental level COVID-19 is already having a devastating impact on many countries and in this regard many African economies need a robust economic stimulus package

African central banks, including the South African Reserve Bank, have responded through stimulus measures, such as rate cuts, among others, to provide liquidity. But these efforts need support.

The international community needs to demonstrate solidarity with Africa through financial support measures.

These measures should both support the continent’s immediate humanitarian needs and place the continent on a path of economic recovery.

Given that a third of Sub-Saharan African countries are in debt distress or at risk of debt distress the waiver of all interest payments on bilateral and multilateral loans would help. 

This would give fiscal space and liquidity to governments.

We encourage the World Bank, International Monetary Fund, the African Development Bank and other institutions to provide debt relief to highly indebted countries.

Thirdly, we need solidarity and international collaboration.

Multilateralism is even more important today to protect citizens in every part of the world.

The African Union Bureau met this morning and decided to give meaning to the concept of solidarity by establishing the African Coronavirus Fund to help fund Africa’s work in fighting this virus. 

A few African countries were able to raise $20 million in just 30 minutes. 

We invite G20 countries to support this African initiative by donating to this fund.”

economic policy Uncategorized

Changes to the money market liquidity management strategy of the South African Reserve Bank

Since 20 March 2020, the South African Reserve Bank has effected some changes to its strategy of managing liquidity in the economy. These are effected through the banking system using various instruments, including interest rates:

On 25 March, the SARB made further amendments to how it manages liquidity:

With the recent amendments, the SARB will now buy government bonds of various maturities in the secondary market (from investors, not from National Treasury and other bond-issuing entities within government).

In an explanatory note, the bank argues that this is not to be seen as quantitative easing:

“No, it is not quantitative easing. The SARB is seeking to reduce dysfunctionality in the market rather than determining prices. This may, however, result in price movements as demand and supply come into alignment. This is, however, not the primary objective. Quantitative easing is generally applied where interest rates are zero or close to zero, and inflation is far below the central bank’s target or even threatening to turn negative. In advanced economies where interest rates are at or close to zero, quantitative easing has been implemented through the purchase of a range of assets to support growth and investment. In general, these countries have used quantitative easing to raise the level of inflation. The SARB is not seeking to do this. South Africa does not have interest rates at or close to zero and the SARB is therefore not using this tool as a means to stimulate demand. The SARB’s intervention is a financial market tool aimed at injecting liquidity into the market and ensuring a smoothly functioning market, rather than for economic stimulus purposes.”

Unlike some other central banks (such as the European Central Bank) that announce the size of their bond buying programmes, the South African Reserve Bank has elected not to announce a target amount.

The SARB has not announced the amount of bond purchases it will undertake nor has it announced the time horizon over which it will conduct these purchases. This will be at the discretion of the SARB and dependent on market conditions.

When central banks use instruments to pump money into markets, a common criticism is that this will drive inflation. Indeed, this has often been the argument advanced by the central bank itself when resisting calls for a more activist role. This time, the argument advanced is that there market participants are freezing up, afraid to take any risk, and hoarding cash. This intervention will correct distortion, without driving inflation.

When risk aversion increases and economic actors sell assets for cash, this generally takes cash out of the markets. This can have negative effects on the economy and also lead to further declines in asset prices. The SARB’s action supports demand for those assets by being a buyer for some of those assets and, in the process, injecting cash into the markets. Under these circumstances, the SARB’s actions are not likely to lead to higher inflation. It should be noted that the Constitutional mandate of the SARB is to maintain price stability in the interest of balanced and sustainable growth. The measures taken in the market are aimed at both: maintaining price stability and ensuring balanced growth.

economic policy

My presentation at the Capacity Building Programme for Employment Promotion workshop

I was asked to give a high level presentation on the administration’s key priorities:

economic policy

Some interesting covid-19 economic mitigation packages emerging

Economic policy responses towards mitigating the effect of Covid-19 are coming in fast and furious. The measures are quite diverse, but there are some emergent themes. Policymakers are obviously targeting those sectors and regions that are most vulnerable to the supply and demand shocks that are playing out across the globe. They are also targeting those businesses that tend to be vulnerable to shocks in general, such as small businesses.

Some statements make an attempt to couch the economic packages, especially on the fiscal policy front, with language that signals prudence. For instance, Indonesia indicates that the fiscal deficit to GDP ratio is still quite low even after the injection and Australia includes favourable language from credit ratings agency S&P.

The measures are also time-bound with a clear end-state. It’s hard to assess how credible the commitment to an end state is. If an economy remains in doldrums after the deadline, the temptation for slippage is quite high, as we’ve seen in past crises (and may also be justified).

Some interesting examples:


  • The Australian government put forward measures to the tune of $17.6bn (0.9% of annual GDP) support to the domestic economy (in addition to $2.4bn to support the health system).
  • The guiding principle of the Australian response is that it should NOT have a permanent or structural impact on the budget balance. The fiscal response is intended to maintain debt sustainability and has received favourable language from S&P.
  • A related principle is that the measures need to be “aligned with the many other arms of policy and activity, in particular monetary policy, and with the responses of other governments, particularly at a state and territory level”
  • The package includes:
    • Expanding the scope of an instant depreciation clause to more businesses (a small business incentive extended to large businesses)
    • Introducing a time limited (15 months) business incentive for accelerated depreciation
    • Cash flow support for small employers (aimed at 690 000 businesses)
    • A 9 month wage subsidy for employers to retain apprentices
    • A one-off $750 payment to social security, veteran and other income support recipients and eligible concession card holders
    • Support for regions, communities and sectors disproportionately affected
      • waiver of fees and charges for tourism businesses; the waiver of entry fees for Commonwealth National Parks
      • additional assistance to help businesses identify alternative export markets or supply chains.
      • measures will also be developed to further promote domestic tourism
      • tax authorities providing administrative relief for some tax obligations for people affected by the Coronavirus outbreak, on a case-by-case basis.
  • Bills to be introduced speedily in Parliament by the end of March


  • Temporarily waived social security contributions for businesses
  • Easing the tax burden for firms in the most vulnerable regions and sectors, including transportation, tourism, and hotels
  • Guide financial institutions to increase 300 billion yuan ($42bn) in low-interest loans and provide targeted support to individual industrial and commercial households – flexibly adjust the repayment arrangements for individual industrial and commercial households that have been severely affected by the epidemic, have difficulty repaying due, and have temporarily lost their source of income, and reasonably extend the term of the loan
  • Reduction or exemption of social security expenses
  • Implementing tax deductions and exemptions. While continuing to implement the policy of exempting VAT on public transport services, living services, and providing necessary living materials for courier delivery services, residents will be exempt from VAT in Hubei Province from March 1, 2020 to May 31, 2020
  • For large commercial buildings, shopping malls, markets, industrial parks and other lessors who have reduced or exempted rent for individual industrial and commercial households during the epidemic period, if it is really difficult to pay real estate tax and urban land use tax in the same year, they can apply for relief
  • For individual industrial and commercial households who rent house assets of administrative institutions, government-owned entrepreneurial parks, incubator parks, commodity trading markets, entrepreneurial bases, and operating houses leased by state-owned enterprises, local governments are encouraged to reduce rents based on actual conditions.
  • Guarantee the electrical supply of individual industrial and commercial households. In the first half of 2020, the “non-stop payment of arrears” measure will be implemented for individual industrial and commercial households affected by the epidemic situation and unable to pay the full electricity and gas costs. The electricity and gas prices of individual industrial and commercial households in industries such as commercial circulation, catering and food, tourism accommodation, transportation and other industries are implemented in accordance with the phased-down policies issued by relevant departments to reduce electricity and gas costs.
  • Encourage the role of Internet platforms. Encourage Internet platforms to relax entry requirements for individual industrial and commercial households, reduce platform service fees, and support online operations. Help individual industrial and commercial households use mobile payment, application software and other services to expand new operation models. Give full play to the advantages of platform institutions’ credit information, and cooperate with Internet banks and small and medium banks to help individual businesses expand their financing channels and provide regular interest-free or low-interest loans. Local governments can provide financial support to e-commerce platform companies with good assistance.

Republic of Korea

  • Support package to the tune of USD16bn (20 tr won):
    • Support a careful and proper disease control and prevention
    • Provide as many as 7 million masks for people in Daegu City and Cheongdo County
    • Promote the lowering of commercial rents by providing landlords with a 50 percent income tax break for the discount in the first half
    • Provide a VAT break for businesses earning 60 million won or less a year
    • Help small merchants and SMEs with their business operation
    • Considerably expand the Special Financial Support for Small Merchant and SMEs
    • Provide employment support for businesses hit hard, such as tourism
    • Increase the issuance of local gift certificates this year by 3.5 trillion won to help local economies and traditional markets
    • Give parent employees up to 5 days of childcare leave along with the pay of 50,000 won per day
    • Promote consumption:  Give a 70 percent individual consumption tax cut for car purchases, and a 10 percent refund for the purchases of high energy-efficiency home appliances
    • Promote consumption by issuing discount coupons to be used for purchasing cultural events and farm products, as well as for tourism expenses and paychecks


  • A US$8bn stimulus package to support the tourism, airline, and the property industries in the wake of the coronavirus outbreak (this will push deficit to only 2.5% of GDP)
  • Waiver on taxes for hotels and restaurants in selected regions of the country – local governments will be compensated by the central government for the loss of taxes
  • Extra funding for the Affordable Food Program to help 15 million low-income households buy staple foods.
  • Exempting some workers in manufacturing from income tax and giving manufacturing companies a discount on corporate tax payments for six months (exempting companies in 19 manufacturing sectors from having to pay import taxes, while giving them a 30% corporate tax discount)


Intro: GBM