S&P Says Political Tension in South Africa ‘Must Be Watched’

  • Too early to say second-quarter growth will be sustainable
  • More than one in three chance that rating could be cut

Political tension in South Africa is making economic reforms more challenging and must be watched, according to S&P Global Ratings.

“We clearly stated that there is a concern that political tension stifles the reform effort, so that must be watched,” S&P Managing Director for sub-Saharan Africa Konrad Reuss said in an interview in Johannesburg on Thursday. “In the current climate of political tension and turmoil it’s certainly more challenging now to achieve all the reforms than one would’ve thought six months ago.”

S&P affirmed South Africa’s credit rating at one level above junk, with a negative outlook, in June and said the government must take decisive steps to bolster growth, quell policy uncertainty and end political interference in institutions to avoid a future downgrade. Reports last month that Finance Minister Pravin Gordhan is being probed by police led to a slump in the rand and bonds.

While economic growth in South Africa rebounded to 3.3 percent in the second quarter following a 1.2 percent contraction in the previous three months, it’s too early to say it is setting a new trend, given the political turmoil, Reuss said.

“A return to a sustainable rate of growth is important to us,” he said. “Another thing we highlighted that is very important to us is adherence to the fiscal target as laid out by Treasury in the February budget.”

Moody’s Investors Service’s Zuzana Brixiova said last week there is about a one-third probability that it would cut its assessment of South Africa’s debt, which is two levels above junk, on Nov. 25. S&P is scheduled to publish its next ratings review on Dec. 2.

“In South Africa, with a negative outlook, there is a more than one in three chances that the direction would be down,” Reuss says.

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