Significant political uncertainty and policy challenges would remain in SA after this week’s election of Cyril Ramaphosa as leader of the ANC, Fitch Ratings said on Wednesday.

The global credit ratings agency downgraded SA to junk status in April 2016 on concern about weakened standards of governance and public finances, and a likely change of economic policy direction.

It affirmed SA’s BB+ (junk) rating with a stable outlook in November 2017.

Fitch was the second ratings agency after Moody’s Investors Service to highlight challenges Ramaphosa’s narrow margin of victory would bring in terms of implementing his desired economic reforms.

"The closeness of the result, and the likely challenges in agreeing and implementing changes to existing economic and fiscal settings, suggest that the policy paralysis prior to this week’s national conference may not be quickly resolved," Fitch said in its review of the ANC election outcome.

While Ramaphosa’s victory would have far-reaching effects, these were likely to remain unpredictable ahead of the 2019 national elections.

"The rise in the rand in anticipation of Ramaphosa’s victory reflects his public commitment to tackle corruption and revive the two factions within the ANC leadership," it said.

"The top six leadership positions are evenly split between those aligned with Ramaphosa and those believed closer to Zuma. The party’s national executive committee is also likely to be divided.

Policy pressure

"The narrow margin of victory suggests support within the ANC for Ramaphosa’s policies could remain fragile," Fitch said.

"Policy trade-offs and continued infighting are likely as Ramaphosa seeks to form and maintain political alliances.

"As long as growth is too weak to significantly reduce inequality, pressure will remain for redistributive policies, even if they weaken SA’s growth potential," the agency said.

Fitch said an early indicator of the political and policy consequences might be whether Ramaphosa seeks to recall Jacob Zuma as president and whether he would have the necessary support within the ANC for this.

Other indicators of Ramaphosa’s ambition for change and power to carry through his agenda include February’s budget, any other significant economic policy announcements and any changes in key personnel such as government ministers and leaders of state-owned enterprises and institutions.

"Economic and fiscal policy uncertainty could therefore remain high in 2018," said Fitch.

"In our most recent Global Economic Outlook, we forecast growth to increase to 1.6% in 2018 and 2.0% in 2019, significantly higher than in the preceding two years, but still lower than the ‘BB’ rating category median," it said.

"Our forecasts assume moderate fiscal consolidation in the February budget, incorporating revenue and spending measures under discussion by the presidential fiscal committee but that were not factored into October’s medium-term budget policy statement.

"Consolidation could weigh on growth, but also help contain the risk premium for SA,"  Fitch said.

"Contingent liabilities from state-owned enterprises are also a risk to public debt levels — we currently forecast general government debt to broadly stabilise at around 60% of gross domestic product (GDP) from 2019," the agency said.

Fitch said its future sovereign credit assessment of the country would depend on fiscal measures, stronger GDP growth and improvements in SA’s standards of governance.


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