Coalition government will have a difficult task with reforms in South Africa, warns Moody’s

In this photo illustration, stock market information from Moodys Investors Service displayed on a smartphone with the Moodys logo in the background. (Igor Golovniov/SOPA Images/LightRocket via Getty Images)

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South Africa could struggle to make much further progress in resolving the country’s long-standing challenges if a coalition government emerges after this month’s elections, Moody’s Investors Service has warned.

“These include stimulating years of slow economic growth, curbing chronic energy shortages and reducing very high unemployment,” said Aurelien Mali, vice president and senior credit officer at Moody’s. “The current government has made gradual progress on these issues.”

Opinion polls suggest the ruling African National Congress could lose its national majority in the May 29 election for the first time since it took power in 1994. While it is expected to remain the largest party, it will lose less than 50 % of the votes will force him to form a coalition government.

already complicated

“The strength or otherwise of the new administration’s mandate – and any concessions to minor parties necessary to secure support – could make the already complicated management of fiscal, economic and social policy objectives even more difficult,” Mali said.

Gross domestic product growth in South Africa has averaged 0.8% over the past decade, a rate insufficient to address rampant unemployment and poverty. Growth has been hampered by the wear and tear of port and rail networks, crime and the inability of state-owned company Eskom to meet electricity demand due to poor maintenance and aging power plants.

“The election raises the possibility of comparatively radical party policies emerging, including non-investor-friendly policies,” Mali said. “However, we believe that the ANC will remain the dominant political force in South Africa, even within a ruling political coalition, limiting the risks of an abrupt change to the current mix of economic and financial policies.”

An Ipsos poll published on April 26 showed the ANC’s support at 40.2%, compared to the 57.5% it won in the 2019 election.

He also suggested that the newly formed uMkhonto weSizwe Party, backed by former president Jacob Zuma, is taking voters away from the leftist Economic Freedom Fighters. According to polls, the EFF polled around 11.5%, up from 19.6% in its February survey, while the MKP has the support of 8.4% of voters.

Moody’s sovereign credit rating for South Africa remains stable at Ba2.