Warning about South African government stability

S&P Global Ratings said a South African government comprising the African National Congress and the Democratic Alliance may prove unstable because the ANC is not in agreement on such a tie-up.

“There’s not complete consensus within the ANC to govern with the DA,” Frank Gill, S&P’s managing director and EMEA sector lead for sovereign ratings, said Thursday in a webinar.

“If a GNU, a national unity government, is formed, it may prove to not be particularly stable.”

The ANC lost its parliamentary majority in the May 29 elections, the first time it has failed to secure more than half the seats in the legislature since coming to power in 1994.

Last week, it invited the country’s main parties to join a broad alliance to form the next administration in a so-called national unity government.

According to people familiar with the ongoing talks, ANC officials have resolved key obstacles with the centrist DA on an accord that will allow Cyril Ramaphosa to be reelected as president by lawmakers on Friday.

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Historically, the DA and ANC have held divergent views on key policy areas such as Black economic empowerment and state-health measures, prompting some in the ANC to oppose a tie-up.

An unstable government may pose a risk to the country, which is struggling to rein in debt and increase revenue due to sluggish economic growth, high unemployment, and rising demands on the fiscus.

South Africa’s debt-to-gross domestic product ratio of 73.7% is well above the emerging market average of 58.9%.

“There are a lot of challenges, particularly fiscal challenges for South African policymakers,” Gill said.

The agency rates South Africa’s foreign-currency debt at BB-.