'SA stuck in low-growth trap' - Moody's

13 September 2017 - 12:15 By Sunita Menon
A Moody's sign on the 7 World Trade Center tower is photographed in this file photo.
A Moody's sign on the 7 World Trade Center tower is photographed in this file photo.

South Africa is stuck in a low-growth trap and is at risk of another downgrade if the government doesn’t implement structural reforms‚ according to Moody’s vice president and senior sovereign analyst Zuzana Brixiova.

Speaking at the Moody’s summit in Johannesburg on Wednesday‚ Brixiova said: “Investors have such low confidence that they don’t invest because of the low-growth environment.”

Amid fears of another downgrade‚ Brixiova said there were positives and negatives but “on balance‚ the risks are tilted to the downside.”

SA could be at risk of another downgrade if the strength and independence of institutions would notably diminish; if the emerging policy framework has become even less predictable or undermined economic or fiscal strength; and if liquidity pressures begin to reemerge at state-owned enterprises (SOEs) that would elicit pronounced government intervention.

Brixiova‚ added‚ however‚ that SA’s outlook would improve if the government were to implement policies and reforms that indicated the continued independence and strength of policy institutions; enhanced medium-term growth and stabilised the government’s debt burden; and led to a decline in the value of guarantees to SOEs.

“It depends on what the structural reforms are‚” explained Brixiova.

“There is a gradual erosion of institutional framework. Currently the SARB (SA Reserve Bank) is under pressure with questions around its mandate.”

She also outlined low growth and high unemployment and the accumulation of public debt and contingent liabilities “which have almost doubled since 2008”.

In June‚ Moody’s cut the local and foreign currency assessments to one level above junk with a negative outlook‚ citing risks to growth and fiscal strength due to the political outlook.

SA is currently rated at Baa3 negative.