Moody’s views ANC’s decisive election victory as credit positive for South Africa

By bne IntelliNews May 14, 2014

Moody’s assessed the ruling African National Congress’s (ANC) victory at the May 7 general election as credit positive as it signals a continuation of macroeconomic policy, Business Day reported, quoting a client report by the global rating agency. The ANC won 62% of the votes, losing some support amid serious corruption concerns and accusations of failure to deliver social promises. Nelson Mandela’s liberation movement won the previous general election in with a voter support of 65.9%. According to Moody’s, the election outcome would “lead to a certain amount of introspection within the party rather than complacency".

The ratings agency noted also that the fact that the major opposition party, the Democratic Alliance (DA), which won 22% of the votes, favoured "a prudent macroeconomic policy agenda such as the one that had been pursued over the last 20 years" further suggests a stable macroeconomic policy environment. The radical populist movement Economic Freedom Fighters (EFF), which won 6.4% support, fights for "radical" economic policies such as land reform, including seizure of white-owned land, and the nationalisation of mines, banks, and other strategic assets.

Moody’s said also that the ANC’s formal endorsement of the National Development Plan (NDP) — the country’s growth and development framework — despite opposition by some unions was positive for the country’s sovereign credit ratings. It expects a partial reshuffling of the cabinet to install ministers that have agreed 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.

Meanwhile, Fitch has warned that the authorities' ability to sustainably increase economic growth via structural reforms is key for the country’s credit ratings. 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, Fitch underscored.

Moody’s rates South Africa at Baa1 with a negative outlook, while Fitch has it at BBB with a stable outlook.

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