S&P cut South Africa’s credit rating to junk status on Monday, saying the dismissal of the respected former South African minister of finance Pravin Gordhan heralded a damaging policy shift, while South African President Jacob Zuma readied for a showdown with other African National Congress (ANC) leaders over the sacking.
In an unscheduled review that prompted a sell-off of South African assets, the credit agency handed the nation its first downgrade since 2000, citing the impact of divisions in the ANC-led government that have resulted in leadership changes, including Gordhan’s removal late on Thursday last week.
“This has increased the likelihood that economic growth and fiscal outcomes could suffer,” said S&P, which cut its rating by one notch to BB+ — its highest non-investment grade mark — and also assigned Africa’s most industrialized economy a negative outlook.
Moody’s later said it was placing South Africa on review for downgrade, and that it would assess the likelihood of changes in key areas of financial and macro-economic policymaking following Zuma’s Cabinet changes.
Zuma’s dismissal of Gordhan, who is widely respected in financial circles, threatens to split the upper echelons of the ruling ANC down the middle.
Some pundits say Gordhan was the target of political pressure from a faction allied with Zuma, which had criticized his plans to rein in government spending and wrangled over spending on a planned nuclear expansion, as well as the running of loss-making state owned enterprises and the tax agency.
His sacking drew criticism from South African Deputy President Cyril Ramaphosa, ANC Secretary-General Gwede Mantashe and ANC Treasurer-General Zweli Mkhize.
Zuma still had the support of the party’s National Chairwoman Baleka Mbete and its Deputy Secretary-General Jessie Duarte, marking a straight split among the party’s “Top Six” leaders, sources said.
Zuma also won the backing of the the party’s influential Women’s League, which accused S&P of holding the country to ransom.
Party spokesman Zizi Kodwa said its National Working Committee would meet yesterday before a decision was taken on how to handle the Gordhan fallout.
New South African Minister of Finance Malusi Gigaba said earlier on Monday he had spoken to the ratings agencies and informed them he would maintain Pretoria’s current fiscal stance.
His appointment hit an already weak rand, which has fallen 11.5 percent since Monday last week. Government bonds also sank.
“We will assure them that although the political environment is a bit concerning, we should be clear that we have all agreed to the same policy direction,” Gigaba’s spokesman Mayihlome Tshwete said, referring to S&P.
Gigaba on Monday said he would pursue “tough and unpopular choices” to oversee a redistribution of wealth to the black majority, a stance echoing comments by Zuma.
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