RPT-Fitch: Growth, Reform Still Key for South Africa Credit Profile

Tue May 13, 2014 5:59am EDT

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May 13 (Reuters) - (The following statement was released by the rating agency)

The South African authorities' ability to sustainably increase economic growth via structural reform remains a key element of Fitch Ratings' assessment following the country's general election. 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.

A clearer picture of the administration's ability and willingness to tackle the country's challenges will emerge in the coming months. Important signals will come from the composition of the cabinet, and whether ministers have prior experience in their field and a track record in government or the private sector. Further considerations will be the speed with which the Medium-Term Strategic Framework, which will make the National Development Plan operational, is implemented, and post-election rhetoric on issues including land reform, mines and small businesses.

For many years the African National Congress (ANC), which won last week's election with 62% of the vote, has tried to steer a course between ideologies ranging from macroeconomic orthodoxy to a more statist view, without achieving the growth needed to ease social pressures. The differing views of groups within the party may partly explain why many policies have been slow to be implemented or failed to gain traction. Our economic forecasts, which project only a weak improvement in real GDP growth, to 1.6% in 2014 and 2.2% in 2015, from 0.77% last year, reflect the fact that the government may continue to struggle to boost growth.

The ANC's share of the vote fell from 66% in 2009, but the outcome is still a significant endorsement for the party despite a high-level corruption scandal and increasingly violent protests against poor service delivery and rising unemployment.

It is too early to assess whether the modest decline in ANC support and the emergence of the Economic Freedom Fighters (EFF), led by Julius Malema, will result in a significant shift in economic policy. The EFF, with a manifesto calling for wide-scale nationalisation, garnered 6% of the vote, making it the third-largest party in South Africa.

Voter turnout, although still high at 73%, has been dwindling from a peak of 89% in 1998, which suggests that voters may be expressing their dissatisfaction with the ruling party by staying away from the polls, rather than voting for opposition parties. Voter turnout was lowest in Limpopo at 63%, down from 70% in the previous elections. This province has been badly affected by service delivery and labour strikes.

Fitch affirmed South Africa's foreign currency sovereign rating at 'BBB' with a Stable Outlook on 18 December 2013. The next scheduled review of the rating is on 13 June 2014.

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