Election outcome won't influence rating agencies – analyst

Agencies not convinced macroeconomic policies put in place by national govt is stimulating the economy

Election outcome won't influence rating agencies - analyst

2 August 2016

Cape Town - The results of Wednesday’s local government elections are unlikely to have a major impact on how rating agencies view South Africa, according to Jugal Mahabir, senior lecturer in public economics and finance at the University of Johannesburg.

“Ratings agencies will look at the overall state of the economy, which is not that good at the moment,” he says. “They are not too convinced that the macroeconomic policies put in place by national government is stimulating the economy.”

Local government elections don’t have such a significant impact on the overall economy and a change of government at local level does not change the structure at national government level, where macroeconomic policy is determined.

Rating agencies will, however, consider whether the local government elections were fair and peaceful.

Coalition governments bring pros and cons

The 2016 local election seems different from previous municipal polls in that it has the biggest number of political parties contesting at 200, plus the largest voters' roll since 1994.

Some opinion polls indicated that coalition governments are likely to be formed in metros such as Nelson Mandela Bay, as it is unlikely that one political party will have an outright majority.

But coalition rule has its own set of challenges. Mahabir said political theory suggests parties that don’t have majorities in a council will result in greater efficiencies and service delivery, as the opposition is better placed to hold the ruling party accountable.

“However, during my time at the Financial and Fiscal Commission I worked out the overall efficiency of municipal expenditure to find out how much money is being wasted by local government. In my analysis, I found that municipal councils that had a majority party were more efficient than councils that were not controlled by a majority party,” he said.

“It suggests that stronger opposition, such as split councils or councils where there were no outright majority, actually derailed the decision-making processes.

“This was probably due to continuous arguments and blocking of decisions, whereas when a party held a majority, it appears that they got decisions through much more smoothly.”

Mahabir said there have been instances where political infighting has resulted in municipal budgets not being passed.

“If we consider this in a South African context, coalitions may not bring greater stability to a municipality,” he said.

This article first appeared on Fin24, see here