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Rating agencies won't be moved by ANC leadership race - analyst

Dec 14 2017 07:52
Lameez Omarjee

Johannesburg – Rating agencies are likely to hold off on reacting to the outcomes of the ANC leadership race, according to an economist.

The ANC’s 54th National Conference is scheduled to start on Saturday, and will determine the outcomes of what analysts have dubbed a “two-horse race” between deputy president Cyril Ramaphosa and ANC MP and President Jacob Zuma’s ex-wife Nkosazana Dlamini-Zuma.

Analysts, however, do not think that the outcomes would warrant a rating action.

In November Standard & Poor’s downgraded South Africa's long-term local currency rating to 'BB+', or junk, from 'BBB-' with a stable outlook. Fitch kept the rating at junk while Moody's placed the country on a 90-day review to be downgraded.

S&P particularly said the decision to downgrade came about as a result of the deterioration of the country’s economic outlook and public finances. Moody’s has also noted the economic and fiscal challenges facing the country.

Professor Jannie Rossouw, head of the Wits School of Economic and Business Sciences, told Fin24 that rating agencies would likely wait for the National Budget in February 2018 before making a call. “Rating agencies are not likely to react given the outcomes of the conference.  They are more concerned with the economic conditions of a country than political conditions.”

Economic strategist at Argon Asset Management, Thabi Leoka is of the view that rating agencies won’t act on the success of a particular candidate. Referring to Moody’s, Leoka reiterated that rating agencies are concerned about the budget deficit and the fiscus. “Rating agencies are less concerned with politics and who will be the ANC president.”

Investec chief economist Annabel Bishop explained that Moody’s, which is the only rating agency out of the three key agencies that has the country’s local and foreign rating on investment grade, would only be able to make adequate assessments of certain factors after the National Budget.

These factors include whether there is willingness and ability by South African authorities to respond through “growth-supportive fiscal adjustments” that will raise revenue and contain spend, introduce structural reforms to stimulate growth and improve governance at state-owned enterprises to limit contingent liabilities.

Nazmeera Moola, co-head of fixed income at Investec Asset Management is also of the view that rating agencies will hold off until the national budget.

But if Dlamini-Zuma wins, then the credit rating depends on what she will say and do if she’s elected ANC president, Fin24 reported.

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