Johannesburg - Political tensions and weak economic growth in South Africa are the biggest challenge to its sovereign credit rating, Moody’s said yesterday in a regular update.
“Political tensions impeded key structural reforms such as comprehensive reforms of state-owned enterprises, which are yet to take place, and hampered growth, another key credit challenge,” said Moody’s, which rates South Africa two notches above junk status with a negative outlook.
S&P also said last week that infighting in the governing ANC could derail government efforts to improve policy implementation and that the government had little room to increase spending.
Moody’s said the credit challenges for South Africa include protracted political tensions that generate policy uncertainty; low growth reflecting persistent structural bottlenecks amid a challenging global environment; accumulation of public debt and government contingent liabilities linked to financially weak state-owned enterprises; and high and persistent unemployment, especially among youth, depletes human capital and increases the potential for extended protests.
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Moody’s said: “Our assessment of South Africa’s economic strength as 'moderate +' balances the economy’s relative size and diversification, with persistently low growth, which has contributed to the country being kept in the middle-income trap. Slow growth has also constrained job creation and contributed to high unemployment as well as weakening debt metrics. In contrast to most other emerging markets, South Africa’s gap with income levels of major advanced economies has been widening.”
It said although small in comparison to other members of Brics (Brazil, Russia, India, China, and South Africa), South Africa’s economy is among the three largest in Africa, alongside Nigeria and Egypt.
“The slowdown in growth and productivity posted since 2011 is in part due to external conditions, especially subdued global growth, investment and trade. Other key constraints are domestic, including political tensions that generate policy uncertainty and structural challenges, including the limited flexibility in labour and product markets, the electricity gap, the lack of competition in network sectors and weak financial situation and governance of state-owned enterprises."