SA sinks into junk status
Pravin axing sparks rating downgrade
President Jacob Zuma’s cabinet reshuffle has plunged South Africa into a crisis after S&P Global Ratings downgraded the country’s credit rating to junk status.
The rating agency announced the move yesterday following the axing of former finance minister Pravin Gordhan and his deputy Mcebisi Jonas by Zuma five days ago.
The downgrade was announced while one of the ANC’s alliance partners, the SACP, and civil society organisations publicly called for Zuma to step down.
Sowetan understands that new Finance Minister Malusi Gigaba, who has been in the executive since 2004, is seen by S&P as junior, a Zuma ally and allegedly close to the Guptas, who have been accused of trying to capture the Treasury.
Lumkile Mondi, senior lecturer at Wits University's school of economic and business sciences, warned tough times ahead as the economy was on a downward spiral and suggested that the only way out for the ANC was to recall Zuma or have him impeached.
“We’re heading for recession. There has to be new leadership that brings hope and stability,” Mondi said.
“It is going to be a hard slog, I don’t envy the ANC government, they need to take drastic action,” he said.
Mondi said many institutions will find it very difficult to borrow money overseas and the government will have less to spend on infrastructure.
S&P said the latest cabinet reshuffle put at risk on the fiscal and growth outcomes.
“We assess that contingent liabilities to the state are rising,” the rating agency said yesterday, lowering its long-term foreign currency sovereign credit rating on South Africa to ‘BB+’ from “BBB-“and the long-term local currency rating to “BBB-' from ‘BBB’.
Mondi’s colleague Chris Malikane, associate professor at the same school, said Gordhan’s axing had already been factored in by the rand and the markets.
“This is an opportunity to transform the economy radically,” he said.
According to Malikane, S&P did not follow its schedule when it announced the downgrade but made public its decision to coincide with planned marches to protest against Gordhan and Jonas’ axing.
“These rating agencies are putting pressure on the president to change,” he said.
Organisation Undoing Tax Abuse (OUTA) appealed yesterday to the ruling party to “take every step possible” to strip Zuma of his role as president of the country.
“We cannot allow this situation to continue and ANC will have to look towards themselves and their inability to take this issue seriously‚” said OUTA chairman Wayne Duvenage. SA Institute of Race Relations CEO Frans Cronje said‚ “the downgrade greatly complicates the prospects for South Africa being able to stage an economic recovery.
Last night Treasury said while there was a new minister and deputy, government’s overall policy orientation remained the same. Meanwhile, the rand weakened substantially late yesterday after the downgrade .
The rand reached R13.74 to a dollar on the news‚ 2.85% lower on the day. –