Gordhan’s axing puts credit rating at risk

CREDIT rating agency Fitch warned late on Friday that the axing of Finance Minister Pravin Gordhan has increased the likelihood that the government’s sovereign credit rating will take a knock.

Fitch said the cabinet reshuffle signalled a change in policy direction and would raise political tensions, potentially weakening public finances and standards of governance.

Fitch also flagged the potential risk to fiscal consolidation as a concern and that the transparency and governance of state-owned enterprises (SOEs) would be halted.

“Continued political instability that adversely affects standards of governance, the economy or public finances, was one of the ratings sensitivities we highlighted in November when we revised the outlook on SA’s BBB-rating to negative from stable,” Fitch said.

The credit rating agency said the reshuffle could affect the GDP and increase contingent liabilities.

“These developments, together with relevant policy announcements from the new cabinet, could result in Fitch reviewing its ratings on the SA sovereign.”

Earlier in the day, speaking about a possible credit rating downgrade, Gordhan said the work done with credit rating agencies hadn’t been undone and that Treasury was working towards ensuring that the ratings remained within investment grade.

“It’s up to us as South Africans to inspire confidence in our economy, to demonstrate we’re capable of bringing about some of the reforms, such as good governance in SOEs, and that the political noise is normal noise in any political society and political party,” Gordhan said.

“I believe we have a very strong case to remain in investment grade unless we shoot ourselves in the foot – and let’s hope that we don’t.”

Moody’s vice-president and lead sovereign analyst for SA Zuzana Brixiova said: “Fiscal and economic policies are an important factor in our assessment of a country’s credit profile; we will closely monitor any potential policy implications of this recent develop

Standard & Poor’s rating agency declined to comment on Friday.

Incoming Finance Minister Malusi Gigaba held a teleconference with rating agencies on Friday to give assurances about the future.