CLAIRE BISSEKER: Things are bad but economy and fiscus are not collapsing

The worst doom merchants say the SA economy is collapsing and is just a few years away from a debt crisis as the energy and transport infrastructure crumbles, growth slows and the wealthy emigrate.

I don’t agree. There’s no denying that Eskom seems to be crash-landing, while Transnet is in denial that it is going the same way. There is also no doubt that SA’s growth momentum is slowing, mainly because of these big logistical constraints coupled with sticky inflation, the waning commodity boom and recessionary global conditions.

But there is still reason to check our cynicism. A lesson in moderation comes courtesy of ratings agencies S&P Global and Fitch, both of which recently affirmed SA’s credit ratings. Granted, they have us pegged three notches deep into junk, but neither saw reason to downgrade their rating outlooks (S&P from “positive” and Fitch from “stable”) despite our worsening growth prospects and the likelihood that this will lead to fiscal slippage.

They are not naive. Neither S&P nor Fitch expects the debt ratio to stabilise at about 71% of GDP this year as the government is promising. Fitch expects it to hit 75% by 2025; S&P, almost 79%. Both think SA is being too optimistic on revenue growth and both expect spending overruns, especially on the wage bill. They also expect the social relief of distress grant to keep being extended beyond fiscal 2023.

Fitch is particularly bearish on growth, expecting the domestic economy to grow by only 1.4% on average over the medium term, against the National Treasury’s forecast of 1.6%. The SA Reserve Bank is with Fitch. Last week the Bank said load-shedding could deduct 0.6 of a percentage point from growth next year. This, alongside lower commodity prices, higher inflation and interest rates, caused it to cut its medium-term growth forecast to 1.4%.

It also revised up its inflation forecast, warning that both growth and inflation could turn out worse than expected — an indication that stagflation risks are building.

My point is that even though growth is slowing, and inflation is proving sticky, it doesn’t mean the economy is “collapsing”, or SA is “on the brink of a debt crisis”. In fact, the main reason the big ratings agencies affirmed our ratings is because of the recent overperformance of fiscal revenues and the government’s strong efforts to control expenditure. As for the rest ... well, they think the positives more or less offset the negatives, though the risks are to the downside in my view.

The ratings agencies remind us that SA’s credit strengths — its flexible exchange rate regime, the strong fund management industry, and the favourable currency and term structure of government debt — count for something. Also positive is the fact that despite acute load-shedding in the third quarter, neither mining nor manufacturing output contracted as they would normally. This may mean energy self-generation by big firms is starting to lessen Eskom’s stranglehold.

Fixed investment

So, though economic conditions are poor, with power outages and transport bottlenecks crippling our growth, there will be a pickup in fixed investment in renewable energy over the next few years. And, if the government can accelerate reforms there should also be an increase in private participation in logistics and other infrastructure. These big shifts would support growth and ease fiscal pressures.

It is also not unreasonable to expect domestic inflation to slow sharply next year due to base effects in the oil price. There’s a good chance CPI could be back at 4.5% by the end of 2023. And instead of the wealthy emigrating, they may choose to reinvest in the Western Cape, as increasingly seems to be the case.

So don’t count the country out just yet. It is undeniably experiencing a slow, grinding descent — load-shedding could be at least as bad next year, and in many places municipal finances and infrastructure are indeed collapsing — but a sudden, catastrophic blow-up or debt crisis still seem unlikely. Small mercies.

• Bisseker is a Financial Mail assistant editor.