March 31, 2017 / 1:13 PM / 4 months ago

Fitch: South Africa Cabinet Reshuffle Signals Policy Change

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(The following statement was released by the rating agency) HONG KONG/LONDON, March 31 (Fitch) South African president Jacob Zuma's cabinet reshuffle signals a change in policy direction and will raise political tensions within the ANC and its traditional allies, potentially weakening public finances and standards of governance, Fitch Ratings says. The president announced that the new cabinet, in which he has replaced finance minister Pravin Gordhan with Malusi Gigaba, will work towards "radical socio-economic transformation." In his February State of the Nation speech, he said this would involve changes "in the structure, systems, institutions and patterns of ownership, management and control of the economy in favour of all South Africans, especially the poor." We believe fiscal consolidation is likely to become less of a priority and the move to improve transparency and governance of state-owned enterprises (SOEs) will be halted. SOEs' liabilities, and therefore contingent liabilities to the government, will probably grow more rapidly, particularly if a plan to postpone the commissioning of new nuclear power stations to 2037 is reversed. The cabinet reshuffle will heighten tensions within the ANC and increase political instability as the party focuses on its policy conference in June and leadership contest in December. The ANC faction weakened by the reshuffle is likely to fight back and challenges to the president could become more open. The political backdrop increases the risk that the government will resort to costly expenditure measures or legislation that will weaken economic growth to stabilise its support. Continued political instability that adversely affects standards of governance, the economy or public finances, was one of the ratings sensitivities we highlighted in November when we revised the Outlook on South Africa's 'BBB-' rating to Negative from Stable. Two other risk factors we highlighted in November that could be heightened by the cabinet reshuffle are: a failure to stabilise the government debt/GDP ratio or an increase in contingent liabilities; and a failure of GDP to recover sustainably. These developments, together with relevant policy announcements from the new cabinet, could result in Fitch reviewing its ratings on the South Africa sovereign. Contact: Jan Friederich Senior Director Sovereigns +852 2263 9910 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Simon Kennedy Senior Analyst Fitch Wire +44 20 3530 1387 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. 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