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UPDATE 1-Moody's says South Africa's political tensions constraining growth
August 16, 2017 / 8:52 AM / a month ago

UPDATE 1-Moody's says South Africa's political tensions constraining growth

(Adds quotes, detail)

JOHANNESBURG, Aug 16 (Reuters) - Political tensions in the ruling African National Congress (ANC) will weigh on South Africa’s growth, ratings agency Moody’s said on Wednesday, a week after President Jacob Zuma survived a no-confidence vote in parliament.

The no-confidence vote showed that support among ANC lawmakers for Zuma is on the wane, increasing the chances of political turmoil within the party that could play into the race to select his successor at a party conference in December.

With the economy back in recession and questions about the credibility of its institutions intensifying, the risk of Africa’s most industrialised economy losing its remaining investment grade credit rating from Moody’s has grown.

“Key constraints to growth are domestic, including political tensions and policy uncertainty,” the ratings agency said in its credit opinion statement on South Africa.

In June, Moody’s cut South Africa’s debt by a single notch after Zuma abruptly fired widely respected Pravin Gordhan as finance minister.

The country has been dropped from the JP Morgan Emerging Market Bond Index Global following downgrades to “junk” status by S&P Global Ratings and Fitch in April.

S&P and Fitch kept their ratings unchanged at BB+ at scheduled debt reviews following the unscheduled downgrades but both have warned of deeper cuts if policy uncertainty continues to hamper economic reforms.

Since Gordhan’s removal, calls for Zuma to step down have intensified from within his party, which has ruled since 1994 when apartheid fell.

Moody’s said in the statement that South Africa’s economy would grow by 0.5 percent this year and 1.2 percent in 2018.

In a no-confidence motion in Zuma held through a secret ballot in parliament last week, about 30 ANC members broke ranks and sided with opposition parties to remove Zuma.

“The results reflect the rising political tensions within the ruling party in the run up to the leadership conference of the African National Congress in December 2017,” Moody’s said.

Allegations of corruption against Zuma in the awarding of government contracts at state firms worth billions of dollars have also dented investor confidence and raised the threat of downgrades as political infighting distracts from the economy.

The reports, denied by Zuma, are based on leaked emails and have drawn several international firms into a scandal that has widened divisions the ANC and prompted senior politicians to call for Zuma’s resignation. (Reporting by TJ Strydom; Editing by James Macharia and Matthew Mpoke Bigg)

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