Fail­ure to im­ple­ment re­forms im­pedes growth – Moody’s

The Star Early Edition - - COMPANIES & NEWS - Ka­belo Khu­malo

LAST month’s sur­prise in­ter­est cut by the SA Re­serve Bank (Sarb) will sup­port short­term growth re­cov­ery, but the gov­ern­ment’s slow progress in im­ple­ment­ing struc­tural re­forms will im­pede the coun­try’s medium-term eco­nomic growth.

This is ac­cord­ing to a re­search re­port re­leased yes­ter­day by rat­ings agency, Moody’s.

Zuzana Brix­iova, a lead­ing sov­er­eign an­a­lyst for South Africa at Moody’s, said SARB’s de­ci­sion should sup­port neart­erm growth by low­er­ing the cost of in­vest­ment and mit­i­gat­ing the de­mand-damp­en­ing im­pact of fis­cal con­sol­i­da­tion.

“The ac­com­moda­tive mon­e­tary pol­icy will also partly off­set the drag of fis­cal con­sol­i­da­tion on growth and help achieve fis­cal con­sol­i­da­tion it­self by re­duc­ing do­mes­tic bor­row­ing costs and sup­port­ing rev­enue col­lec­tion.

“In the con­text of very high un­em­ploy­ment, the more ac­com­moda­tive stance will ease pres­sures on South Africa’s rel­a­tively highly in­debted house­holds,” Brix­iova said.

Sarb’s mon­e­tary pol­icy com­mit­tee took the mar­ket by sur­prise when it low­ered its bench­mark re­port rate by 25 ba­sis points two weeks ago – its first rate cut since 2012.

The cen­tral bank said the de­ci­sion to cut the rates was sup­ported by an im­proved in­fla­tion out­look since its last meet­ing, but cau­tioned that risks to the in­fla­tion out­look still re­main.

Brix­iova said SARB’s ef­forts to re­vive busi­ness con­fi­dence and in­vest­ment were likely to have a ma­te­rial im­pact only on medium-term growth, if ac­com­pa­nied by cred­i­ble fis­cal ad­just­ment and struc­tural re­forms to raise in­vest­ment.

“We con­cur with SARB’s view that mon­e­tary pol­icy alone can­not pro­vide a so­lu­tion to the struc­tural growth con­straints that the econ­omy has been ex­pe­ri­enc­ing for a num­ber of years.”

Among the struc­tural re­forms flagged by Moody’s were bar­ri­ers to en­try for firms in key sec­tors such as en­ergy, trans­port and telecom­mu­ni­ca­tions as well as man­u­fac­tur­ing and high value-ad­ding ser­vices, also con­strain­ing more rapid growth in out­put and em­ploy­ment.

Weak gov­er­nance and a de­te­ri­o­rat­ing busi­ness en­vi­ron­ment also im­peded in­vest­ment and start-ups, Brix­iova said.

The rat­ing agency also said the coun­try would need to at­tend to in­fra­struc­ture gaps, skills short­ages, rel­a­tively weak ed­u­ca­tional out­comes and the risk of in­dus­trial ac­tion that im­pede the smooth func­tion­ing of labour mar­kets if the coun­try wanted to achieve eco­nomic growth in the long run.

Last week, the Or­gan­i­sa­tion for Eco­nomic Co-op­er­a­tion and Devel­op­ment re­leased its eco­nomic sur­vey and ad­vised the coun­try to em­bark on wide-rang­ing struc­tural re­forms to put the econ­omy on a new growth tra­jec­tory, boost job-cre­ation and im­prove in­clu­siv­ity.

The sur­vey en­cour­aged the coun­try to open key sec­tors in­clud­ing telecom­mu­ni­ca­tions, en­ergy, trans­port and ser­vices to more com­pe­ti­tion and for the coun­try to con­sider es­tab­lish­ing a univer­sal stu­dent loan scheme con­tin­gent on fu­ture earn­ings, with the par­tic­i­pa­tion of banks and backed by gov­ern­ment guar­an­tees.

Moody’s also weighed in on the in­de­pen­dence and man­date of the Re­serve Bank, say­ing its de­ci­sion to cut in­ter­est rates “co­in­cides with po­lit­i­cal pres­sure on SARB’s in­de­pen­dence and man­date”.

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