S&P: political risks may derail South Africa's economy - CNBC Africa

S&P: political risks may derail South Africa's economy


by Reuters 0

Political risks may derail South Africa's economy. PHOTO: Wikipedia

Standard & Poor's said on Monday that political upheaval might derail South Africa's economy and that it expected that risk to intensify ahead of local government elections on Aug. 3, although it does not anticipate a recession.

The ratings agency also said that economic reforms must be implemented to avoid a downgrade in December, having, on Friday, kept its rating at BBB- with a negative outlook and lowered its economic growth estimate to 0.6 percent from 1.6 percent. 

South Africa's economy grew by only 1.3 percent in 2015 and major sectors in Africa's most industrialised nation have shrunk due to a weak rand, low consumer demand and rising inflation.

"The potential impact of increasing political tensions within the ruling ANC and within government can potentially derail policy implementation and the reform endeavours that have been intensified since the beginning of this year," S&P's Africa analyst, Gardner Rusike, told a media conference call.

President Jacob Zuma has faced mounting criticism from the opposition over managing the economy after he changed finance ministers twice in a week in December. But the ruling African National Congress party has backed him, helping him survive an impeachment vote in parliament in April.

Finance Minister Pravin Gordhan said on Monday the reprieve from a downgrade to "junk" status by S&P was an opportunity to focus on improving the economy, creating jobs and implementing reforms that would see GDP move towards two percent.

"We have lots going for us if we can convert plans into action," he said on state-owned SABC television.

South Africa now awaits a review by Fitch, which also rates its debt one notch above non-investment grade, with the decision due on Wednesday, according to the Treasury.

Last month Moody's held its rating at Baa2.

"It remains to be seen just how fixed the view of S&P Global Ratings is and how it will play out in six months' time, with some expectation that the rating downgrade has been postponed, not avoided," NKC African Economics analyst, Gary van Staden, said.

Gordhan admitted the Treasury was worried about the risk posed to the rating by the 467 billion rand ($31 billion) in state guarantees to government-owned firms.

"Now what we want to see is that each of these are managed properly financially, are governed properly, make the right kinds of decisions within the parameters of the law and take the pressure off the government fiscus," he said.

On Friday, the Treasury said it would decide by the end of this year which state-owned companies would be privatised or closed after warnings by S&P, Moody's and Fitch that their reliance on state bailouts posed a major risk.