SA and Nigeria plan sovereign bonds

At a national level, external vulnerability is also quite low compared to the country’s A-rated peers, in spite of ongoing current account deficits.

The Reserve Bank of South Africa has been accumulating foreign exchange in the past seven years.

This is because its capital account, showing long-term investment forex inflow surpluses regularly exceeded the current account (difference between exports and imports) deficits, and its net reserves position is in surplus by nearly $39 billion.

Ms Lindow said global crisis hit South Africa just as the economy was coming off a cyclical peak after a long expansion leading it to have a 1.8 per cent contraction.

“The recovery in the last few months, while coming later than that of the global economy, has been unexpectedly robust,” she said. “However, growth is likely to settle in at a slower pace of around 3.5 per cent in the coming years than the five per cent that was registered in the four years leading up to the crisis.”

The weak recovery is a result of weaker global demand, higher unemployment and less-rapid local credit expansion – this being partly due to burdened household balance sheets.

“The government’s own balance sheet has been hit hard by the recession,” said Lindow. “The medium-term outlook for government finances also has deteriorated significantly due to higher spending but mainly, lower revenues. As a result, after a decade of consistently declining debt ratios, the government’s deficits and debt have started to rise regardless of which indicators one chooses.”

Moody’s said that fiscal consolidation will progress less quickly in the years ahead compared to the pre-crisis period, in view of the slower rate of growth.

“Given the country’s socio-economic problems, including high poverty and wide income disparities, the other potential risk factor for South Africa is political,” said Ms Lindow. “Still, as far as the macroeconomic policy framework is concerned, the Zuma administration’s first budget matched the determination of its predecessors in affirming a fiscally responsible agenda and rejecting demands from its left-wing partners for larger deficit spending.”