South Africa, the biggest economy on the continent, could slip into junk rating due to political instability that has led to a weakened rand and slowed growth, according to Fitch Ratings Ltd who forecast the economy to grow by less than three percent in the next two years.
The country’s debt to Gross Domestic Product (GDP) is 44 percent, while the rand and stocks took a hit last week, further increasing the country’s debt.
“The in-fighting within the ANC and the government is likely to continue over the next year. This will distract policy makers and lead to mixed messages that will continue to undermine the investment climate, thereby constraining GDP,” Bloomberg quoted the latest Fitch Ratings report on the country.
The political risk has adversely hit South Africa’s governance standards and its economy. This expected to persist until December next year, when the ruling African National Congress (ANC) holds its elections ahead of the national polls.
Fitch Ratings projected growth of 0.5 percent this year will be the lowest since 2009. The ratings for local and foreign currency were kept at BBB-, the lowest investment grade level.
Investor confidence in Africa’s biggest economy has been battered as political battles between President Jacob Zuma and his Finance minister, Pravin Gordhan, took centre stage in recent weeks.
Zuma survived an impeachment motion sponsored from within his ruling party last week, as corruption allegations embattle his leadership.
The use of public funds to upgrade his private residence in Nkandla, KwaZulu Natal, the influence of the Gupta family in his ministerial appointments and 783 counts of corruption in a 1999 arms deal, are major scandals facing Zuma, BBC reported.
The corruption allegations leveled against Gordhan, which were dropped last month, led to investor fears as critics said that the claims were part of plans by Zuma’s supporters to oust Gordhan in the battle to control the Treasury.
The government has downplayed the junk credit status facing the nation saying that it had preserved its investment-grade rating, which will give the country more time to fast-track the much needed-reforms to boost investor confidence.
The Treasury said that it has proposed additional tax measures to stabilize the government debt and implementation of micro reforms in tourism, agriculture and oceans sectors to boost short-term growth, is ongoing, Politics reported.