The African Union's Peer Review Mechanism believes that ratings agency, Fitch's comments on a preferred coalition is premature and unsubstantiated. Picture: AFP/ Joel Saget
The African Union's Peer Review Mechanism believes that ratings agency, Fitch's comments on a preferred coalition is premature and unsubstantiated.
The APRM, which undertakes routine analyses of rating actions and commentaries assigned by international credit ratings agencies to African Union Member States, warned that given Fitch Ratings command in the global financial markets, it viewed the comments as politically motivated and tantamount to political interference in the South Africa's internal political affairs.
Last week, Fitch Ratings stated that the result of the May 29 elections meant that the African National Congress (ANC) will need to rely on the support of other large parties to govern.
In a statement, Fitch Ratings said; "The various permutations of government could have very different implications for policy, with potentially significant effects for South Africa’s credit profile.
"Prior to the election, we assumed that the ANC would be able to govern with the support of a few relatively small parties, an outcome that we anticipated would result in broad policy continuity. However, the ANC’s share of the vote was lower than we expected, and means that it will need support from either the Democratic Alliance (DA), the uMkhonto Wesizwe (MK) Party or the Economic Freedom Fighters (EFF) in order to rule. Such backing could come through a coalition, or other means, such as agreements to provide support from outside government, or informal ad-hoc arrangements," the ratings agency said.
It added that an arrangement where the Democratic Alliance (DA) supports the ANC from outside government would be more likely than a formal coalition between the two, owing to strong divergences between their voter bases on some key issues.
The agency said this would enable President Cyril Ramaphosa to continue implementing his main priorities, including tackling infrastructure issues, and would likely result in the least significant changes to key credit metrics, such as South Africa’s debt trajectory, over the medium term, although fiscal tightening might be enhanced.
"The MK and EFF are populist parties and campaigned on radical agendas, with many shared elements. These included wide-scale land expropriation without compensation, nationalisation of key parts of the economy, including mines, the central bank and large banks and insurers, halting fiscal consolidation and aggressively increasing social grants.
"Reaching agreement with the MK or EFF would require significant concessions by at least one of the parties involved, as the ANC’s stance differs sharply on these policies. We believe an agenda advanced by a government backed by the MK or EFF would be less radical than their campaign platforms might suggest.
Moreover, a number of policies proposed by the two parties would require constitutional changes that would be unlikely to pass parliament, in our view, given the outcome of the election," Fitch said.
It added that it believed that even if the most radical policies do not come to pass, it believed that South Africa’s debt trajectory would face additional risks if the ANC enters into arrangements that rely on support from the MK or EFF, leading to a broad weakening of investor confidence or eroded governance.
Expressing concern at the sentiments, the APRM explained that given the influence that Fitch Ratings command in the global financial markets, the APRM viewed the comments as politically motivated and tantamount to political interference.
“This is especially important considering that the commentary has been issued amidst ongoing negotiations by political parties to form a coalition government or a government of national unity following the general elections in South Africa which have produced no outright winner. As a Global Financial Institution Fitch Ratings should conduct itself as an independent and non-political institution.
“The APRM views this comment by Fitch as premature and unsubstantiated.
“Fitch should have waited for the outcomes of the ongoing negotiations by political parties and the resulting policy choices to make conclusions that are based on facts and informed analysis,” the APRM said in a statement.
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