Fitch cautiously optimistic about South Africa's economy

JOHANNESBURG, Dec. 20 (Xinhua) -- Ratings agency Fitch said on Wednesday that it remains cautiously optimistic about the economic situation in South Africa following the election of Cyril Ramaphosa as leader of the ruling party, the African National Congress (ANC).

The ratings agency predicted a discord in the implementation of economic and fiscal policies considering the closeness of the voting result. Fitch Ratings noted that "policy paralysis" existed in the run-up to the ANC election and argued that the impasse will not be resolved quickly.

South Africa's rand edged up as much as 4 percent, the most in two years, late on Monday after officials announced Ramaphosa had beaten his main rival, Nkosazana Dlamini-Zuma. It also advanced 0.2 percent to R12.72 to the U.S dollar by 5:00 p.m. on Tuesday.

"The full repercussions of his victory will be far-reaching, but they are likely to remain unpredictable ahead of the 2019 elections," Fitch said, "The rise in the rand in anticipation of Ramaphosa's victory reflects his public commitment to tackle corruption and revive the economy. If businesses and consumers view the outcome favorably, this could give a near-term boost to growth," it added.

With the slim victory of Ramaphosa, Fitch ratings agency expected further political division within ANC which will result in the inconsistency in policy-making. "As long as growth is too weak to significantly reduce inequality, the pressure will remain for redistributive policies, even if they weaken SA's growth potential," said Fitch.

In November, Fitch affirmed SA's 'BB+'/Stable sovereign rating but highlighted a number of issues, which indicated a weaker fiscal outlook.

"Whether fiscal measures, stronger gross domestic product (GDP) growth and improvements in standards of governance that may emerge in the wake of the ANC's national conference can mitigate those trends, remain a key element of our sovereign credit assessment," said Fitch.

On Tuesday ratings agency Moody's said the election of Ramaphosa opens up a tentative possibility of a "credit positive" shift in South Africa policy and an increase in business confidence. This could reverse the gradual deterioration in the country's credit fundamentals, it said.

Ramaphosa as a former businessman was seen by many investors more market-orientated.

In November Moody's placed South Africa's sovereign debt, which has a Baa3 rating, on review for downgrade. However, the ratings agency S&P Global did not place South Africa on the sub-investment grade. Enditem