AND DOWN WE GO...
Political risk puts SA only one notch above junk status
POLITICAL risk relating to the ANC’s succession struggle has become the top concern for ratings agency Fitch, which yesterday revised its outlook for the country from stable to negative, while keeping it one notch above the dreaded junk status.
It said political risks to standards of governance and policy-making had increased and “will remain high at least until the electoral conference of the ANC”.
This would hurt macroeconomic performance.
It said infighting in government and the ANC – for which Finance Minister Pravin Gordhan has become a lightning rod – would continue, distracting policymakers and leading to “mixed messages that will continue to undermine the investment climate, thereby constraining GDP growth”.
Fitch said for mer public protector Thuli Madonsela’s report on state capture had highlighted “allegations of influence peddling and improper procurement practices involving close allies of the president”.
The report also underlined the risks to state-owned enterprise (SOE) governance, Fitch said, noting the resignation of Eskom chief executive Brian Molefe.
It said debt of SOEs remained an important contingent liability to the state, amounting to R743 billion (18.2 percent of GDP) at the end of March, of which R280bn was subject to government guarantees.
Factional battles in the ANC could undermine government efforts to improve the governance of SOEs, Fitch said, referring to undertakings by Gordhan and Zuma at the beginning of the year that this would be urgently addressed.
While the cabinet has approved draft legislation to tighten processes for the appointment, removal and remuneration of executives and boards of public enterprises and to regulate private sector participation, the arm-wrestle over the SA Airways board, which culminated in the return of Dudu Myeni as the chairperson, against the wishes of Gordhan, has shown the process remains fraught.
Molefe’s resignation from following revelations in Madonsela’s report of his close relationship with the Guptas, as well as evidence of links between the family and the majority of board members, has raised concerns over the parastatal.
In a separate development, Standard & Poor’s cut Eskom’s long-term corporate credit rating to BB from BB+, with a negative outlook.
On a positive note, Fitch said the release this week of the draft Integrated Resource Plan, in which nuclear procurement appears to have been deferred by at least 10 years, would ease concerns about any medium-term fiscal impact.
It said while the economy had begun to recover from “a series of shocks”, business confidence was still depressed and investment continued to contract.
It projected GDP growth of 1.3 percent next year and 2.1 percent in 2018, saying Gordhan’s fiscal targets in his October medium-ter m budget policy statement now looked “only mildly optimistic”. It saw the budget deficit shrinking to 2.8 percent of GDP in 2018/19, just 0.1 percent higher than Gordhan’s target.
The Treasury said the fact that our investment grade status had been maintained “demonstrates the resilience of the country, especially during difficult times”.