South Africa is stuck in a low-growth trap and is at risk of another downgrade if the government does not implement structural reforms‚ Moody’s vice-president and senior sovereign analyst Zuzana Brixiova said.
“Investors have such low confidence that they don’t invest because of the lowgrowth environment,” she said at the Moody’s summit in Johannesburg yesterday. Amid fears of another downgrade‚ Brixiova said there were positives and negatives, but “on balance‚ the risks are tilted to the downside”.
South Africa could be at risk of another downgrade if the strength and independence of institutions notably diminished and if the emerging policy framework became even less predictable or undermined economic or fiscal strength.
Another factor was if liquidity pressures began to emerge again at state-owned enterprises that would elicit pronounced government intervention.
Brixiova said‚ however‚ that the outlook would improve if the government were to implement policies and reforms that indicated the continued independence and strength of policy institutions.
It also needed to enhance medium-term growth and stabilise the government’s debt burden.
“It depends on what the structural reforms are‚” she said. “There is a gradual erosion of institutional framework. “The 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 had 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. South Africa is currently rated at Baa3 negative. – BusinessLIVE