SOUTH AFRICA’S CREDIT DOWNGRADED TO JUNK STATUS FOLLOWING SACKING OF FINANCE MINISTER
JOHANNESBURG, International ratings agency Standard and Poor’s (S&P) has downgraded South Africa to junk status.
The rating change follows last Friday’s Cabinet reshuffle which saw finance minister Pravin Gordhan and his deputy, Mcebisi Jonas, removed from the Treasury.
S&P held an emergency meeting over the weekend after perceptions were created that the move was intended to push through a one-trillion-Rand (about 73 billion US dollars) nuclear power deal and to bail out entities like the South African Broadcasting Corporation (SABC) and South African Airways (SAA).
In December, S&P had kept the country’s sovereign credit rating at one notch above junk status.
The Rand suffered its biggest plunge since the Nenegate affair — the sacking of then finance minister Nhlanhla Musa Nene in December 2015.
S&P said Monday that the downgrade reflected divisions in the ANC-led government and the “reckless” Cabinet reshuffle by President Zuma which saw the axing of the country’s respected finance minister, Pravin Gordhan. The Rand reacted immediately to trade at R13.71 to the US dollar. The currency has now lost eight per cent of its value in the last week and is also trading five per cent weaker against the British Pound and the Euro.
S&P said the Cabinet changes had put at risk fiscal and growth outcomes. It will now become increasingly difficult for the Treasury to borrow on the world market as Zuma reportedly moves to give the green light to a one-trillion rand nuclear agreement with Russia and bail out state entities SAA and the SABC.
Meanwhile, Mike Schussler from Economists.co.za. said the downgrade by the biggest rating agency in the world by client numbers was not surprising. “The speed of the downgrade was not slow, however, but its is now very likely that Friday will see a further downgrade by Moodys to just above junk status. They are the 2nd biggest (rating agency).
“That would mean South Africa will have been downgraded by the top two. Although only one rating agency has rated South Africa non-investment grade for our foreign debt.
“The Rand is lower, while the yield on government debt is already higher since last week. I am concerned that the consumer will fell this impact and that a lot of hard work has been undone — from our debt to GDP levels and our size of Government will have to be brought under control. This will be tough in a lower growth environment with low commodity prices. It will take years to turn this big ship around and I am not sure that we have the team to do it.”
The National Treasury, now helmed by new Finance Minister Malusi Gigaba, says it is committed to a responsible fiscal path following S&P’s decision to cut the country’s sovereign credit rating to junk.
It said in a statement that South Africa will persist with a consistent policy framework, which responds to changing circumstances in a measured and transparent fashion.
The opposition United Democratic Movement (UDM) party, blamed the downgrade on what its calls the reckless, irresponsible Cabinet reshuffle by President Zuma. UDM Chief Whip, Nqabayomzi Kwankwa, said: “It’s a very sad day in South Africa that President Zuma’s leadership has led us to a point where we have been downgraded to junk status by Standard and Poors.
“It has serious implications for our country and economy because our credit is going to increase. People are not going to plough their money into the South African economy.
“As a political party, we once more, reiterate the call that we have been making over a couple of years that we need to do everything in our power, working within the constitutional framework, to remove President Zuma from the office of the President of the Republic of South Africa.”
The leader of the top opposition party, the Democratic Alliance, Mmusi Maimane, said S&P had cast a vote of No Confidence in President Jacob Zuma.
Source: NAM NEWS NETWORK