Election result ‘credit positive’ for South Africa: Moody’s

14 May 2014

The African National Congress’s (ANC’s) decisive victory in last week’s general election is “credit positive” for South Africa, as it clears the way for the government to push ahead with implementing the National Development Plan (NDP), rating agency Moody’s said on Tuesday.

The NDP is the country’s 30-year growth and development framework for growing the economy while tackling unemployment, poverty and inequality.

Following the ANC’s victory with a 62% majority in South Africa’s fifth democratic election, President Jacob Zuma said the new administration would give the green light to implementing the NDP and promoting inclusive economic growth and job creation.

“The new mandate is also a licence to continue with our ambitious infrastructure build programme, and ensure the provision of better roads, universities and colleges, hospitals, dams, railway lines and power stations that boost economic and social development,” Zuma said on the weekend.

Moody’s, in a credit report issued on Tuesday, said: “Our key takeaway from this election is that macroeconomic policy continuity is now more assured, a credit positive,” Moody’s said in a credit report.

“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. These are broadly the mix of policies that have supported South Africa’s investment grade rating for 20 years.”

Moody’s currently has South Africa’s sovereign credit rating at Baa1 with a negative outlook. Standard & Poors (S&P) rates South Africa at BBB with a negative outlook, while Fitch rates the country at BBB with a stable outlook.

The three agencies, widely regarded as the top three in the world, play an important role in determining South Africa’s perceived credit-worthiness, which affects how much the country has to pay investors to borrow money to fund its various programmes – notably its infrastructure build programme.

S&P’s director for sovereign and international public finance ratings, Ravi Bhatia, told Business Day on Tuesday that the problems facing South Africa’s economy remained, “but hopefully with a new mandate, government can start tackling these problems and look at implementing structural reforms to address them”.

Fitch, in its post-election update, said it would be closely monitoring the speed with which the government implemented the NDP, noting that policy implementation had been slow to date due to differences of opinion within the ANC.

Moody’s vice-president Kristin Lindow said on Tuesday that the agency was impressed with the ANC’s formal endorsement of the NDP despite opposition from some trade unions, including the powerful Congress of South African Trade Unions (Cosatu).

“The ANC’s commitment to the NDP is demonstrated by high-level decisions in the midst of the election campaign, such as approving the Employment Tax Incentive Act … over the unions’ strong objections,” Lindow told Business Day.

SAinfo reporter