South African government pledges to address structural constraints to economic growth

The South African government pledged on Monday to continue working with the business, labour and the civil society to restore confidence in the economy and address the structural constraints to economic growth.

The government will promote a stable and cooperative labour relations environment, encourage development of energy-efficient,job-creating industries, lower the cost of doing business, remove regulatory constraints and act swiftly to remove policy uncertainty, the National Treasury said.

The government will also implement reforms to ensure that state-owned companies are financially sound, operate efficiently, are well-managed and properly governed, the Treasury said.

The Treasury issued the statement after Moody's Investors Service (Moody's) affirmed South Africa's government bond long and short term ratings of 'Baa2 / P-2' respectively and assigned a negative outlook.

Moody's is the only solicited rating agency that assigns the same rating for both the domestic and foreign currency denominated debt, Baa2 -a rating that is two notches above sub-investment grade.

The investment grade credit rating affirmation marks an end to the review period that started on March 8, 2016, when Moody's placed the country's ratings under review for possible downgrade.

Moody's decision was based on the following reasons. First, the adoption of more aggressive consolidation measures in the 2016 Budget will increase the likelihood that general government debt to GDP will stabilise in the current year; and the recent political developments are testament to South Africa's institutional strength compared to its peers.

The Treasury said this proved that the government's decision to implement fiscal consolidation to return public finances to a sustainable path while protecting core social and economic programs was correct.

South Africa's monetary and fiscal institutions remain sound over time. Despite adverse political developments in recent months, government continues to demonstrate determination to bring the public finances under control and ensure that programs such as nuclear and the National Health Insurance Scheme are financed at a scale and pace that is affordable, the Treasury said.

But Moody's warned of the need to implement the structural and legislative reforms.

The future trajectory of the rating will be highly dependent on the government's success in enhancing medium term growth prospects, stabilizing debt and restoring investor.

The country's outlook can be changed from negative to stable if government delivers on commitments that support growth and achieve fiscal targets, the agency said.