SA downgraded to junk status by S&P

Rating agency adjusted South Africa’s credit rating following Cabinet reshuffle.

Standard and Poor’s (S&P) Global Ratings downgraded South Africa’s long-term foreign currency sovereign credit rating to BB+ from BBB- and the long-term local currency rating to BBB- from BBB yesterday, saying the recent firing of Finance Minister Pravin Gordhan posed a risk fiscal policy.

The rand almost instantly fell by as much 2% to the dollar in response to the news of the downgrade, while government bonds also weakened sharply.

“The downgrade reflects our view that the divisions in the ANC-led government that have led to changes in the executive leadership, including the finance minister, have put policy continuity at risk,” S&P said in a statement.

S&P assigned South Africa a negative outlook, saying this reflected its view that political risks will remain high this year, and that “policy shifts are likely which could undermine fiscal and growth outcomes more than we currently project”.

A downgrade to junk would increase South Africa’s debt-servicing costs, seen at R144 billion ($11 billion) in the 2016-17 fiscal year.

Paying higher debt costs would mean less money for critical services such as housing, education and sanitation, which could incite more protests that have rocked the country.

The new Finance Minister, Malusi Gigaba said earlier yesterday he had spoken to the ratings agencies and informed them he would maintain Pretoria’s fiscal stance.

Wayne Duvenhage, the chairperson of the Organisation Undoing Tax Abuse, said in light of the downgrade, the organisation calls on the ANC’s leadership to recall Jacob Zuma from his position as the leader of the ruling party and to take every step possible to ensure he is stripped of his role as the president of South Africa, with haste.

“We cannot allow this situation to continue and the ruling party will have to look toward themselves and their inability to take this issue seriously,” Duvenage said in a statement.

“We believe that if the authorities act swiftly, South Africa may be able to have the rest of the ratings agencies to stay their decision for a downgrade, and eventually get S&P to reverse their decision.”

In its statement, S&P said the negative outlook “reflects the view that there is at least a one in three probability that budgetary performance, debt levels, and economic growth will deteriorate beyond our current baseline expectations”. – Reuters, ANA