South Africa credit rating remains stable amid political turmoil

5 Jun 17

South Africa has avoided further damaging downgrades from ratings agencies in the past week, but continuing political turmoil remains a risk.

 

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Cape Town, South Africa - Photo: iStock

Cape Town by night - Photo: iStock

 

Both Fitch Ratings and S&P chose to keep their current ratings on hold. The two agencies had cut South Africa’s rating to junk status earlier this year, following a government reshuffle that ousted respected finance minister Pravin Gordhan, known for curtailing what were considered irresponsible spending plans hatched by president Jacob Zuma.

Fitch said that Gordhan’s successor, Zuma ally Malusi Gigaba, had reaffirmed the government’s commitments to fiscal targets, but that plans will be “insufficient to keep deficit targets on track”.

The agency also seemed reassured by suggestions from senior members of the country’s ruling party, the African National Congress, that plans for a “radical” socioeconomic transformation, announced in the wake of the reshuffle, signals “no fundamental change”.

While tensions within the ANC also bode well for continuity, Fitch pointed to a lack of predictability and infighting, as well as low growth trends, “sizeable” contingent liabilities and deteriorating governance as weighing on the country’s rating.

S&P also highlighted the same issues, with low growth posing a risk to plans to balance the public accounts and the current political environment rattling potential investors.

As well as a divided ANC, the government has been repeatedly plagued by corruption and mismanagement scandals, and Zuma frequently faces and calls to resign from citizens.

Elize Kruger, analyst at NKC African Economics, said that dodging further ratings downgrades gives South Africa a “window of opportunity” to address some of the concerns raised.

However, she added that day-to-day management of the economy is often out of step with what is needed and stated in official documents.

“Media headlines tell another story; one of a policy vacuum, more evidence of state capture, mal-governance in state-owned enterprises and political infighting that are taking up most of the governing party’s time and attention, to the detriment of the South African economy,” Kruger explained.

“To avoid further downgrades, evidence will be needed that the government is willing to walk the talk.”

  • Emma Rumney

    Emma is a reporter at Cooking Recipes International. She also writes for in the UK.

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