SA unlikely to slide into crisis – Goldman Sachs

A stress test conducted on
South Africa by Goldman
Sachs International found
the probability of the
country sliding into a crisis
relatively low, but there are
concerns that have to be
addressed urgently by the
Zuma administration.
According to the
company’s managing
director, Colin Coleman,
the data demonstrates
that whilst deteriorating
trends may be discerned,
even in a low probability
stress scenario South Africa
remains resilient to shock.
“This should give
confidence to private
and public sector fixed
investors, and domestic and
international institutional
investors and calm fears of
an impending crisis,” he said.
“Further to that, current
corporate restructuring
trends will help the country
to withstand shocks.”
But, he said, strong
economic management,
leadership and policy
co-ordination was urgently
required to put the country
on a sustainable path.
“Without urgent action,
South Africa may be
caught in a low growth trap
that is not helped by an
approaching storm of global
headwinds.”
He said the economic
slowdown in the country,
higher unemployment, rising
inf lation and interest rates
remained cause for concern.
“However, the country is
resilient and recent trends
are not cause for panic,” said
Coleman.
The Goldman Sachs
International stress test
looked at South Africa
in terms of three shock
scenarios – foreigners
suddenly no longer providing
finance, massive social
disruptions locally, or a
complete outflow where
foreigners exit the country
redeeming all bonds.
“In the first scenario there
is only a 9.5% probability
of this happening in South
Africa compared to Turkey
that has a risk of twice that.
At the same time the country
also has a 30-month cushion
in which to deal with the
shock should it ever occur,”
explained Coleman. “In the
case of the second scenario,
were social disruptions to
take place there is also very
low probability of it happening
and if it did there are 18
months to run out of reserves
from the onset of the crisis. The
third scenario – a complete
outflow – is highly improbable
and unprecedented.”
INSERT & CAPTION
Without urgent
action, South Africa
may be caught in a
low growth trap.
– Colin Coleman