Moody's vice-president Zuzana Brixiova. Picture: FREDDY MAVUNDA
Moody's vice-president Zuzana Brixiova. Picture: FREDDY MAVUNDA

SA 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 fear 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 notably diminished; if the policy framework becomes even less predictable or undermines economic or fiscal strength; and if liquidity pressures begin to re-emerge at state-owned entities (SOEs) that would elicit pronounced government intervention.

Brixiova said, 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," Brixiova said.

She said political risks were playing into the other risks.

“Tension and uncertainty is creating policy uncertainty and is stalling certain structural reforms.”

Brixiova said Moody’s would be paying close attention to the medium-term budget policy statement and the ANC leadership conference this year.

"There is a gradual erosion of institutional framework," she said. "Currently the Reserve Bank is under pressure with questions around its mandate.

"The issue of the mandate in the Constitution is quite clear as price stability. It has been performing that mandate very well and this is a prerequisite for macroeconomic stability."

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.

Brixiova said the downgrade was because of the abruptness of the Cabinet reshuffle, when fiscal policy was on track. It had clearly shaken business confidence, she said.​

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