Fitch followed in the footsteps of both Standard & Poor’s and Moody’s following its decision to keep South Africa’s investment grade credit, but did surprise the market by keeping a stable outlook. In the statement Fitch pointed to political tension and growth concerns as the biggest threat to the rating going forward. Which wont have been helped with first quarter negative growth of 1.2 percent. The agency is concerned that tensions between Finance Minister Gordhan and other parts of government do raise questions. South Africa has sidestepped a canyon and there must be a huge sigh of relief around the country, but now the hard work starts. If government and business don’t use the next six months to put workable solutions in place, December once again be hampered with bad news. – Stuart Lowman
Cape Town – Ratings agency Fitch on Wednesday affirmed South Africa’s investment grade credit, and surprisingly kept its outlook stable, but it warned that political and growth concerns should be addressed.
This follows rating reviews by Moody’s and Standard & Poor’s, who both kept South Africa above non-investment grade – also known as junk status.
“The ‘BBB-‘ rating reflects low trend gross domestic product growth, significant fiscal and external deficits, and high debt levels, which are balanced by strong policy institutions, deep local capital markets and a favourable government debt structure,” it said.
Stats SA announced 20 minutes earlier that South Africa recorded a negative growth rate of -1.2% in the first quarter of 2016, according to the latest figures released by Stats SA.
Fitch said political risk “increased since the previous rating review in December 2015, although it is not out of line with ‘BBB’ peers”.
“The dismissal of two finance ministers in a week in December, and subsequent tensions between the new Finance Minister Pravin Gordhan and other parts of the government have raised questions about the commitment of the government to sustained fiscal consolidation and prudent governance of state-owned enterprises,” Fitch warned.
“President Jacob Zuma has become increasingly embattled following the Constitutional Court ruling that he should repay some public funds used to refurbish his Nkandla residence and the Gauteng high court’s ruling that the previous suspension of a 2009 corruption case against Zuma was irrational.
“Nevertheless, institutions have proved robust. However, Fitch expects the governing African National Congress (ANC) may lose some support in local elections on 3 August 2016. Tensions within the ANC are also increasing ahead of the conference in December 2017 to elect Zuma’s successor as ANC president.
“Fitch views political risks mainly in terms of the impact on the economy and public finances. Fitch’s base case is that the government remains committed to fiscal objectives set out in February’s budget, but political tensions increase risks to progress on fiscal consolidation and growth-enhancing measures, and raise the chances of policy missteps.” – Fin24