South African authorities should avoid populist measures such as introducing a minimum wage in the run up to local elections in August, ratings agency Fitch said on Thursday.
Fitch, which rates the debt of Africa’s most industrialised country at BBB-, one notch above speculative grade, is expected to publish a review of the country’s debt rating on June 3.
The government is mulling the implementation of a national minimum wage but has not set a date for its introduction.
“The authorities may see a need to react to the discontent about insufficient improvement to living standards by pushing costly social programmes,” Fitch head of EMEA sovereign ratings Jan Friederich told a banking conference, referring to the upcoming elections.
“Authorities may feel, if they have a poor showing, that there is a need for quick fixes like the introduction of a high minimum wage that would appear to help the poor but may also discourage investment,” he said via a prerecorded video.
The underperforming economy, expected to grown by less than 1 percent, also posed a risk to the rating, Friederich said.
South African officials spoke to Fitch by phone last week, the Treasury said on Monday, adding that analysts from Standard & Poor’s had also visited the country during that week.
S&P also rates South Africa’s debt at BBB-, one notch above speculative grade and with a negative outlook
Earlier this month, the other major rating agency, Moody’s, kept South Africa’s rating on hold at Baa2 with a negative outlook, two notches above junk.
(Reporting by Mfuneko Toyana; Editing by James Macharia)