The body, which supports the financial industry in the prudent management of risks, said it had identified South Africa as an emerging market facing a combination of an overvalued currency, heavy positioning, and a sizeable current account deficit.
Tariq Khan, research analyst at the IFF, said South Africa's high external debt posed vulnerability on the current account deficit more than offsetting a benign trade balance as well as the core of heavy positioning and high external amortisation relative to reserves.
“This particular risk is partly mitigated by large external assets in the private sector, which could serve as a source of inflows in the event of a large depreciation due to regulatory caps on locals’ foreign holdings,” Khan said. “However, the ongoing fiscal deficit issue and a potential downgrade to junk status could further worsen external vulnerability.”
Moody’s last month said it expected South Africa's public finances and debt profile to further deteriorate and economic growth to recover slowly over the next two years. The credit rating agency warned that a downgrade could follow if state debt rose.