Ratings agency Fitch has warned of risks to SA’s public debt trajectory and macroeconomic stability if the ANC formed a government that relied on the support of uMkhonto weSizwe (MK) or the EFF.
It said that could weaken investor confidence or erode governance even if the most radical policies did not come to pass. “There is a risk that the weakened public support seen in the election could incentivise the ANC to adopt short-termist policies to secure a coalition or win back public support, and fiscal consolidation could suffer as a result,” Fitch said in a post-election note on Tuesday.
The agency said the election outcome raised new risks for SA’s credit profile if it caused fiscal consolidation to suffer.
But bankers who spoke at an S&P Global Ratings conference in Johannesburg on Tuesday said that they would work with any government chosen by the electorate, and were optimistic about a stable outcome.
“We need to make sure that Standard Bank is appropriately positioned and able to deal with a government that the people of SA have chosen,” said Standard Bank CEO Sim Tshabalala. “But I do think that we will have stability ... I’ve got no doubt that the institutions of SA will continue to function.”
Tshabalala said that eight of the 10 SA elections since 1980 had been followed by rallies in the equities, bond and currency markets. “And the data supports the view that we may see the same happening this time,” he said.
Nedbank finance director Mike Davis said coalitions were complicated, and it was important to make them effective “regardless of who chooses who”.
The election had made it clear to political parties that people wanted service delivery. “And the politicians now need to get together and make this work,” said Davies.
“It’s got to be a constructive meeting of politicians who have a common objective, which is around service delivery.” A poor coalition would result in a lack of foreign direct investment, and further inability to bring down SA’s high levels of unemployment and poverty, he said.
Absa Group chief economist Jeff Gable said that SA was 15 years into an environment of a super low growth, and while the Treasury could move expenditure or shift priorities, “until SA is able to grow more rapidly the fiscal challenge isn’t going to ease ... so the task of the incoming administration is to try to find sustainable ways to help SA grow”.
Job creation
Jobs were at the core and that required investment. “That’s going to be about generating an environment where businesses feel more confident,” he said.
S&P affirmed SA’s rating at BB minus with a stable outlook on May 20, saying that while load-shedding constraints were less acute than before, broader infrastructure shortfalls continued to dampen economic growth, which it expected would pick up modestly to 1.1% in 2024, from 0.6% in 2023, and to average 1.3% in 2024-27.
But while S&P at that stage expected the general election to yield broad policy continuity, with fiscal consolidation continuing, it projected that government debt levels would still rise to more than 80% by 2027, and it warned that it could lower SA’s credit ratings if economic and governance reforms did not progress as planned.
Fitch said on Tuesday that different permutations of government could have very different implications for policy, with potentially significant effects for SA’s credit profile.
Support from the DA would probably enable President Cyril Ramaphosa to continue implementing his main priorities, including tackling infrastructure issues, said Fitch.
“It is likely to result in the least significant changes to key credit metrics, such as SA’s debt trajectory, over the medium term, though fiscal tightening might be enhanced.”
Fitch said the DA might, for instance, try to lengthen the phase-in period for the National Health Insurance Act.
Like S&P, Fitch has SA on BB minus with stable outlook, a rating that it affirmed in January. But it had warned that a further significant increase in the government debt ratio or weakening of economic growth could cause a ratings downgrade.
Set aside differences
On the upside, S&P said in its May update: “We could raise the ratings with an improving track record of effective reforms, resulting in a structural strengthening of economic growth and reduced levels of public debt and contingent liabilities.” The bankers’ comments at the S&P conference on Tuesday came after Business Unity SA (Busa) said on Monday that the top priority for a coalition government had to be to address the critical challenges of extremely weak economic growth, record high unemployment, widening income inequality and crumbling infrastructure.
“These elections provide us with an opportunity to set aside our political and ideological differences and work together to rebuild our country and put it on the path to inclusive growth and job creation,” said Busa CEO Cas Coovadia.
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