Fitch affirms South Africa's credit rating, warns of political risk

Rating agency, Fitch has affirmed South Africa’s investment grade credit rating and maintained its stable outlook, strengthening the rand on Wednesday.

The agency however, warned that political tension could still derail efforts to boost growth.

Africa’s most industrialsed economy plunged into turmoil in December after President Jacob Zuma changed his finance minister.

Fitch becomes the third agency after S&P Global Ratings and Moody’s to keep its ratings unchanged.

This comes as Africa’s most industrialised economy grapples with slow growth.

However, Standard & Poor’s had said on Monday that political upheaval might derail the country’s economy and that it expected risk to intensify ahead of local government elections on August 3, although it did not anticipate a recession.

South Africa has dodged downgrades from S&P Global Ratings and Moody’s taking some pressure off President Jacob Zuma ahead of elections in August giving policy makers more time to implement reforms to boost GDP growth.

Th country’s economy grew by only 1.3 percent in 2015 and major sectors in the country shrunk due to a weak rand, low consumer demand and rising inflation.

Rand Merchant Bank analyst John Cairns said the announcement will be a small negative and will not fully offset the positive news from S&P.

“We expect Fitch to affirm the rating at BBB- but change the outlook to negative, bringing them in line with S&P,” Rand Merchant Bank analyst John Cairns said.

Three other analysts who spoke with Reuters expected much the same result.

S&P on Friday said it was sticking to its BBB rating on the country, a notch above non-investment grade. But warned that its negative outlook reflected the potential adverse consequences of low GDP growth. Moody’s had kept its rating at BAA2 last month.

The rand and government bonds jumped after the S&P review, with the currency trading at 0.3 percent firmer, while the benchmark bond due in 2026 and the country’s dollar-denominated bonds firmed.

Fitch expects economic growth in South Africa to slow to 0.7 percent this year and 1.5 percent in 2017.