OPINIONISTA: High cost of government debt is hampering SA’s development

Beyond policy uncertainty, among the factors that are hampering the recovery are: the decline of the capital stock in the economy, particularly of machinery and equipment; labour market hysteresis: loss of skill and productive ability due to large-scale long-term unemployment, sub-employment, and inefficient job-worker matching; the significant increase in financial leverage/debt , which limits the capacity to increase spending through additional borrowing.

So far, there is no sign of progress on any of these issues. Unions have been key supporters of President Cyril Ramaphosa and this has seemingly reduced the space to cut headcount in the public service or Eskom. Despite the years of Zuma degradation, the remaining strength of South Africa’s institutions is one of the core pillars of our credit rating. Institutional strength is the main support behind Moody’s investment grade rating of South African debt. The Bank is the bulwark of this institutional assessment.

It might surprise you to learn that the Goldman Sachs analyst was not writing about South Africa. He was, in fact, describing Brazil’s structural constraints. Despite these, in the last 12 months, Brazil’s 10-year bond yield has rallied 200 basis points. At the same time, South Africa’s 10-year yield has sold off 30 basis points. However, Brazil’s structural challenges remain.

Source: Loan Digest (loandigest.net)

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