The African National Congress’s decisive win in South Africa’s general election is positive for the nation’s credit as it signals the ruling party will stick to its economic policy, Moody’s Investors Service said.
“Thanks to its clear majority win, the incoming administration will be less indebted” to the ANC’s allies in labor and the South African Communist Party, which support nationalization of industries, increased government spending and looser monetary policy, Moody’s said in an e-mailed report today. The government can now implement more directly its National Development Plan, a 20-year economic program that’s been opposed by labor unions, it said.
Moody’s has kept a negative outlook on South Africa’s credit rating since September 2012 when it was downgraded to Baa1, the third-lowest investment grade level.
The rand rose 0.5 percent against the dollar to 10.3030 as of 12:18 p.m. in Johannesburg, the biggest increase of 16 major currencies tracked by Bloomberg, and taking its gain to 1.5 percent since the election on May 7.
The ANC won 62.2 percent of the vote last week, ensuring a second term for President Jacob Zuma, who has been tainted by corruption allegations related to the use of taxpayers’ money to upgrade his personal residence. The Democratic Alliance won 22.2 percent, followed by 6.4 percent support for the Economic Freedom Fighters, which is led by expelled ANC youth leader Julius Malema and is pushing for the nationalization of banks and mines.
Fitch Ratings said its assessment on South Africa depends on whether the government can sustainably increase economic growth through “structural reform.” It rates the nation’s debt at BBB, one level below Moody’s, with a stable outlook.
“Without stronger growth, faster job creation and a narrowing of the fiscal and current account deficits, which continue to push public and external debt ratios up, South Africa’s creditworthiness will gradually deteriorate,” London-based Fitch said in an e-mailed statement. It will hold the next scheduled review of the rating on June 13.
Zuma pledged on May 11 to intensify efforts to reduce poverty and a 25 percent jobless rate, saying the election win gives the ANC the “green light” to implement the National Development Plan. The government is forecasting 2.7 percent expansion this year.
“We expect to see a partial reshuffling of the cabinet to install ministers that agree with the broad macroeconomic framework, including government spending and deficit restraint, inflation targeting and a free-floating exchange rate, and the general direction outlined in the NDP,” Moody’s said.