Ratings agency Fitch affirmed South Africa's investment-grade credit rating at one notch above 'junk' on Friday but changed its outlook to negative from stable, warning that political risks could hurt growth.

With the economy expected to grow by only half a percent this year, South Africa has been racing to avert a downgrade of its sovereign debt to sub-investment status, which would raise its borrowing costs and deter investment.

Africa's most industrialised country needs to borrow about 165 billion rand ($12 billion) this fiscal year to help plug its budget deficit, and the Treasury warned this month that its borrowing costs could double or triple if it falls into sub-investment grade.

Fitch said that, although business confidence was depressed and investment was contracting, South Africa's economy may have started to recover.

But it said in-fighting in the ruling African National Congress (ANC) was likely to continue at least until the party's electoral conference in December 2017.

"In Fitch's view, this will distract policymakers and lead to mixed messages that will continue to undermine the investment climate, thereby constraining GDP growth."

S&P's on Friday cut state-owned power utility Eskom's credit rating a further notch into subinvestment.

Peter Attard Montalto, a London-based Africa analyst at Nomura, said this raised concerns that the country's sovereign rating would also be dragged into junk status "given the interdependence of parastatal ratings with the sovereign."

"POLITICAL NOISE"

Finance Minister Pravin Gordhan told Talk Radio 702 the country would have to limit "political noises" and focus on expanding the economy to avoid being downgraded to junk.

Fitch's announcement puts the spotlight on President Jacob Zuma, who has been mired in political scandals this year, most recently after an anti-graft watchdog alleged influence-peddling in his government. Zuma has denied any wrongdoing.

The president's office said Zuma would challenge the watchdog's report in court.

Financial markets have also been rattled by accusations of political interference, notably when the state prosecutor brought fraud charges against Gordhan, then reversed the decision after an outcry.

Gordhan said he saw no reason for Moody's to downgrade South Africa), adding: "We still have a formidable base."

The finance spokesman of the main opposition Democratic Alliance party said Fitch's decision was "evidence that the politics is killing the economics in South Africa".