Local debt levels were still too high for South Africa to be able to "proudly confirm" that it was out of the woods in terms of the global economic recovery, South African Reserve Bank chief economist Dr Monde Mnyande said on Wednesday.

In a copy of speech he delivered to a convention of the Financial Planning Institute of Southern Africa, he also stated that the sovereign debt challenges in the Eurozone had put South Africa on the alert.

"The continued appetite among foreign investors towards the emerging markets - interspersed with occasional jitters - leaves us with a volatile exchange rate and capital flow patterns that are not necessarily sustainable, even though they help to finance our current-account deficit," he said.

Mnyande warned that the developments in Eurozone countries, such as Greece and Spain, could potentially lead to a reversal of capital flows to emerging market economies.

"Currently, investors are taking advantage of interest rates in most emerging and commodity producing economies, as well as the growth prospects of these economies as projected in the recent ‘World Economic Outlook' published by the International Monetary Fund, in April," he commented.

He added that the potential risk in this regard was the upturn in the interest rate cycle of advanced economies and the reduction in the margins thereof.