Fitch warns South Africa of "quick fixes" in run up to local elections

by Reuters 16 views0

Fitch warns South Africa of "quick fixes" in run up to local elections

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)