JOHANNESBURG – President Cyril Ramaphosa this week came under intense pressure to appoint a credible Cabinet capable of implementing his reform agenda with his picks likely to determine the direction of the markets and investor sentiment in the next few months.
Investec economist Kamilla Kaplan said the next point of focus for the markets would be the announcement in May of the size and composition of the cabinet and the state of the nation address in June.
“This is expected to provide more clarity on government policy especially in relation to economic growth enhancing measures,” Kaplan said.
“These will also be scrutinised by the credit rating agencies given the implications for the fiscal ratios, with the government deficit presently close to 5 percent of gross domestic product (GDP) and debt hovering at 60 percent of GDP.”
Moody’s, the last of the major rating agencies that still has the country’s sovereign debt above junk, on Wednesday warned Ramaphosa that it was keeping a keen eye on the composition of the incoming administration and the policies it would pursue to address South Africa’s key credit challenges.
In one of its sternest warnings to date, Moody’s said the country was fast slipping into junk status as continuing structural weaknesses and rising debt overran South Africa’s ability to service its obligations.
Nolan Wapenaar, fund manager at Anchor Capital, said it would be crucial for the economy that Ramaphosa appoints a skilled executive.
“Much is being made of the shape of the new cabinet as it will be the first glimpse into what President Cyril Ramaphosa’s reform agenda will really look like and whether he will rid the ANC (and the country) of Zuma-era rentseekers and compromised individuals,” Wapenaar said.
Pressure on Ramaphosa intensified further where data showed that the labour market conditions deteriorated in the first quarter with the unemployment rate having picked up to 27.6 percent from 27.1 percent and in line with weak economic data releases during the quarter. First quarter activity data has indicated that the economy has contracted in the first three months of the year, after retail sales, mining and production figures all weakened on a quarter on quarter basis.
Maarten Ackerman, chief economist at Citadel, said many of the policies announced during the course of last year and are already in the pipeline, but investors will want to see that Ramaphosa and government take definitive action in terms of implementation.
“If the government is able to show definitive progress by the time of the Mid-Term Budget Policy Statement in October, it could hopefully mean that we will be able to avoid or defer a potential credit ratings downgrade,” Ackerman said.