Moody's pulls the plug

David Bullard says our long wait for junk status is finally over


It would have been very surprising if the ratings agency Moody’s had taken pity on us last Friday and delayed, yet again, this country’s downgrade to junk status. I did wonder, albeit briefly, if they might have given us a stay of execution because of the dire economic effect the COVID-19 shutdown will have on the economy but the reality is that our downgrade to junk status has absolutely nothing to do with the effects of the coronavirus and everything to do with the financial pillaging and mismanagement of the economy over the past decade.

In fact, Moody’s were extremely kind to us for some reason and their final downgrade comes almost three years after the other two ratings agencies decided we were a lost cause. This enabled us to remain on that all important list of bonds that international investors are allowed to put their client’s money in.

The fact that Moody’s gave us such a generous stay of execution should have sent strong signals to the ANC government that we urgently needed to clean up our act but it clearly didn’t.


State owned enterprises continued to limp along inefficiently, bailed out by what was assumed to be a never-ending torrent of tax payer money. Municipalities defaulted on paying for electricity and the government just looked away. Municipal services in places like Harrismith collapsed completely while smiling buffoons who managed to grab themselves cadre positions well beyond their capabilities continued to draw a fat salary while doing nothing.

All over the country there are horrific stories of the sort of municipal services we all used to take for granted simply not existing. The reasons are always the same. The people employed to run them hadn’t a clue what they were doing and/or the people running them were far more interested in enriching themselves and their close family members through dodgy tenders and weirdly exaggerated procurement deals such as buying R7 bottles of water for R27. How this could have continued for years without being spotted beggars belief but when the head of the fish is rotten then…well, you know the rest.

Virtually every day brings new stories of government corruption and it’s no longer a couple of hundred thousand rand here or there or a reduced price Mercedes Benz 4x4. It’s millions and tens of millions of rands that have disappeared and not a single arrest to show for it despite overwhelming evidence meticulously set out by investigative journalists pointing to the culprits.

As somebody commented on social media this week with justified bitterness “and yet the police can arrest anyone caught breaking the lockdown rules”.

So now the hot smelly stuff has hit the whirring fan blades what next?

Well, all the usual pundits have assured us that this was expected and the news has been fully discounted by the bond and currency markets. As a former trader I can assure you that confident predictions like that are never wise and you only know the extent of the fall out when the market has digested the reality. COVID-19 has muddied the waters even more so, although I’m writing this ahead of Monday’s market opening, my guess would be that the currency is in for a rough time.

The big question now is how the ANC are going to afford many of their grandiose plans? That super-tech 5G megacity that the President mentioned a few weeks ago at SONA for example. Or the bullet trains crisscrossing the country that he talked about in his previous SONA. These are such things as dreams are made on.

I suspect that the rescue plan was for SAA (and I’m sure it involved retrenchments) can be safely binned now. Nothing with an SAA logo on it is going to be getting into the air any time soon.

Similarly, the huge hole in the Eskom balance sheet still needs to be filled although we can take some cold comfort from the fact the country’s almost complete lack of economic activity means that we should be spared load-shedding for some while.

Apart from the many shoddily run SOE’s that have needed patching up over the years, it will be interesting to see how the government propose to continue paying the bloated civil service and all those rather expensive members of parliament, particularly the ones who dance around in red onesies and like slapping people.

The reality is that the cupboard, if not bare already, is certainly heading that way and a refusal to cut back on costs will guarantee that the money will run out sooner rather than later. That means job losses from loyal ANC cadres and the argument will be that we cannot afford more job losses in the economic climate. But that’s why Moody’s gave you over two years to get your house in order chaps and you ignored them.

It’s little consolation to look elsewhere in the world and see that other countries, to a greater or lesser extent, are in the same boat as us when it comes to COVID-19 fallout. But that’s just going to make it so much more difficult should we be knocking on the door of the International Monetary Fund any time soon.

As R W Johnson pointed out rather more elegantly on these pages last week, rather like the rush for toilet paper, the rush for bailouts could turn out to be a scramble to get to the front of the queue. Besides, it’s no guarantee that we would get any money from the IMF.

They don’t just hand the stuff over. They like to see that you have a strategy to get your economy back on its feet and be in a position to repay the loan. As far as that is concerned we don’t have a very convincing story to tell. So, if we don’t get it from the IMF who will be our lender of last resort?

Some have suggested China as a possibility. But if you thought the IMF conditions were onerous I can promise you that China’s will be more so. But at least we’ll get 5G connectivity as part of the deal and that new shining city near Lanseria might become a reality. Who said Cyril doesn’t have a plan?