Johannesburg - Ratings agency Fitch affirmed South Africa's investment grade credit rating and maintained its stable outlook, strengthening the rand on Wednesday, but warned that political tensions could still derail efforts to boost growth.
Africa's most industrialised economy plunged into turmoil in December after President Jacob Zuma changed his finance minister twice in a week.
But Fitch became the third agency - after S&P Global Ratings and Moody's - to keep its rating unchanged since then, taking some pressure off Zuma before local elections in August.
Fitch's announcement should also give policymakers more time to implement reforms and boost the economy, before the next round of reviews in December where a “junk” status looms if Pretoria fails to impress, analysts said.
Fitch said the 'BBB-' rating reflected low GDP growth, significant fiscal and external deficits and high debt levels, which are balanced by strong policy institutions, deep local capital markets and a favourable government debt structure.
“The dismissal of two finance ministers in a week in December, and subsequent tensions between the new finance minister Pravin Gordhan and other parts of the government have raised questions about the commitment of the government to sustained fiscal consolidation and prudent governance of state-owned enterprises,” Fitch said.
The central bank estimates the economy will expand by 0.6 percent this year from only 1.3 percent in 2015, with major sectors shrinking due to a weak rand, low consumer demand and rising inflation.
Fitch said the ruling African National Congress was likely to lose some support in the local elections in August.
“Fitch's base case is that the government remains committed to fiscal objectives set out in February's budget, but political tensions increase risks to progress on fiscal consolidation and growth-enhancing measures, and raise the chances of policy missteps,” the agency said.
There was no immediate reaction from the National Treasury following the release of Fitch's statement.
Finance Minister Pravin Gordhan had said earlier on Wednesday that he was “keeping his fingers crossed” in the countdown to a rating review by Fitch and called for more concrete action to revive the economy.
Gordhan announced an austere budget in February, aimed at avoiding credit rating downgrades, including spending cuts, civil service job freezes and moderate tax hikes on property sales, fuel, alcohol and capital gains.
Ratings agencies have also urged South Africa to take measures to improve the economy and deal with loss-making state owned enterprises before a next round of reviews in December.
Analysts said although Fitch had given South Africa some breathing space, the agency was still concerned by poor growth.
“And that ultimately will need to change for the better if we are going to see any improvement in South Africa's rating outlook, and if we are in fact going to avoid a downgrade later this year,” said BNP Paribas Cadiz Securities economist Jeffrey Schultz.