THE ANC could lose its majority in the general election as a result of government’s failure to resolve persistent socio-economic challenges.
This was the warning from Fitch Ratings agency on Friday as it left South Africa's credit rating unchanged at “BB-” with a stable outlook.
If the ANC declined to less than 50% and there was no outright winner at the polls slated for May 2024, investors feared this would result in instability as the country would be governed through a coalition of two or more political parties.
Fitch said South Africa’s long-term foreign-currency issuer default rating was constrained by low real economic growth, a high level of inequality, a high and a rising government debt-to-GDP ratio amid a modest path of fiscal consolidation.
In a report by Fitch’s senior analysts, the ratings agency said growth in South Africa was hampered by power shortages that were expected to continue in the near to medium term, although at a lower magnitude than in recent months, and by a struggling logistic sector.
Fitch said the ratings were supported by a favourable debt structure with long maturities and mostly local-currency-denominated, strong institutions, as well as a credible monetary policy framework.
Fitch noted the elevated socio-political risks in the country, saying that unemployment moderately declined to 32.2% in the third quarter of 2023 from a record high of 35.4% in the fourth quarter of 2021, but remained much higher than pre-pandemic.
It said the high unemployment rate, in conjunction with an exceptionally high level of income inequality, would continue to constrain fiscal consolidation and pose a risk to socio-political stability, with frequent strikes and protests.
“The African National Congress's dominance over the political landscape has been challenged since the party's poor performance in the November 2021 municipal elections,” Fitch said.
“We believe the party could lose its majority in the May 2024 general election, but this would be unlikely to result in major changes in economic policy.”
Last week, the ANC concluded a week-long celebration of its 112th birthday with President Cyril Ramaphosa delivering the party's annual January 8th statement at a packed Mbombela Stadium where he promised an “outright victory”.
Oxford Africa Economics head of macro Jaques Nel said: “The ANC-led government may be bereft of ideas to tackle the country's many challenges, but the party has a plan for winning the elections.
“Re-election remains the party’s top priority, but disenchanted voters, funding issues and a growing number of alternative parties mean it will be the ANC’s toughest electoral assignment yet.”
Meanwhile, Fitch is forecasting that real GDP growth will accelerate to 0.9% in 2024 and 1.3% in 2025 from an estimated 0.5% in 2023.
It said the economy remained severely troubled by the impact of electricity capacity constraints, a struggling logistics sector and a high level of inequality.
“Further incremental progress on the 35 priority reforms identified by the government under Operation Vulindlela, launched in 2020, was recorded in the second half of 2023, mainly in the energy and logistics sectors,” it said.
In response to Fitch, the National Treasury said the government would focus on raising GDP growth by improving the provision of electricity, logistics and enhancing the delivery of infrastructure over the medium term.
“Fiscal policy continues to support this approach by stabilising debt and debt-service costs,” the Treasury said.
“Government reiterates that fiscal consolidation will be implemented through spending reductions, efficiency measures across government and moderate tax revenue measures.”
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