VULNERABLE NATIONS
BRIAN KANTOR: Growth-enhancing reform hindered by political difficulties
Were Brazil or SA to adopt a mix of policies that reduce risks and improve prospective returns on capital, the long-term growth outlook would improve and their economies would grow faster
We can recall the days when the Brics — Brazil, Russia, India, China and SA — were the darlings of the commentators. Their growth prospects were fuelled by the supercycle of commodity prices and much improved equity markets until the global financial crisis of 2008. Commodity prices and emerging market equities recovered strongly after the crisis but then fell away continuously from 2011 until mid-2016. This took down the value of emerging market currencies including the rand, and forced inflation and interest rates higher, adding to the Brics misery. Reports out of Brazil are particularly discouraging. The constitutional crisis and probable elections will make it more difficult to enact the economic reforms that could permanently improve the country’s prospects. The trajectory of its social security expenditure and lack of revenue from payroll taxes will take the social security funding deficit — now 2.4% of GDP — to 14% by 2021, according to the IMF. These fiscal problems are comp...
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