Now Fitch downgrades SA to junk

South African debt got dealt a second blow in a week as Fitch Ratings joined S&P Global Ratings and cut the nation’s credit assessment to junk following President Jacob Zuma’s move to fire his well-respected finance minister. By Arabile Gumede.

Jacob Zuma

South African debt got dealt a second blow in a week as Fitch Ratings joined S&P Global Ratings and cut the nation’s credit assessment to junk following President Jacob Zuma’s move to fire his well-respected finance minister.

Fitch reduced the foreign-currency rating to BB+, the highest non-investment grade, the company said in a statement on Friday, four days after S&P reduced its assessment. The local-currency rating was also lowered one level to junk. The outlook is stable.

Zuma fired finance minister Pravin Gordhan, who pushed for budget restraint, in a cabinet reshuffle on 31 March, igniting South Africa’s worst political crisis in almost a decade and sparking calls from top officials for him to resign.

Investors regard the firing as a blow to an economy growing at the slowest pace since a 2009 recession and grappling with 27% unemployment. The rand and bonds plunged.

The downgrade “reflects Fitch’s view that recent political events, including a major cabinet reshuffle, will weaken standards of governance and public finances”, the company said.

“The reshuffle is likely to undermine, if not reverse, progress in state-owned enterprises’ governance, raising the risk that state-owned enterprise debt could migrate onto the government’s balance sheet.”

Zuma doesn’t understand how his actions can influence decisions by rating companies, and his actions showed a “recklessness” that ruined South Africa’s credibility, former President Kgalema Motlanthe said in a 3 April interview.

Pressure within the ruling ANC has been growing for Zuma to step down after he recalled Gordhan from a trade trip in London on 27 March. The former minister was holding meetings with investors and ratings companies.

The president replaced Gordhan with former home affairs minister Malusi Gigaba, who has no financial or business experience, making him the nation’s fourth finance minister in 15 months.

Both the South African Communist Party and the Congress of South African Trade Unions, the country’s biggest labour federation, have called on Zuma to resign, as has a group of the ANC’s veteran members.

Malusi Gigaba, left, with President Jacob Zuma

The rand, which had been the world’s best-performing currency in 2017 until the 27 March recall, has now erased all its gains this year for the biggest decline among more than 140 currencies monitored by Bloomberg. The rand decreased 0,6% to R13,84/US$ at 1.38pm in Johannesburg.

The Fitch cut came as thousands of people gathered across the country to demand that Zuma resign. The protests were called by Save South Africa, which has been campaigning for better government, and are backed by the main opposition party, the Democratic Alliance, and civil-rights groups.

Zuma, 74, will face a no-confidence motion in parliament on 18 April sponsored by opposition parties. The ruling ANC said its members won’t vote against the president, whose decision to change the cabinet was criticised by three senior members of the party, including deputy President Cyril Ramaphosa.

Zuma, who’s due to step down as ANC leader in December and as the nation’s president in 2019, has survived a series of corruption scandals and presided over the party’s worst electoral performance since the end of apartheid in 1994 in municipal elections in August.

Moody’s Investors Service put its Baa2 assessment, which is two levels above junk, on review for a downgrade on 3 April.  — (c) 2017 Bloomberg LP

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  • Leko

    What is junk status in your understanding ? , because to me it means default / no prospect of recovering in the near future . I cannot say Gigaba will fail or succeed , time will tell . But for Pravin , your dude dismally failed . Under his watch SA dropped standards . Pity … you don’t know me , nothing smells ANC in me but I cannot turn a blind eye or blindly go with the flow … Zuma must go for valid reasons as both him and Pravin are failures . I’m glad you trust Malema , I used to see him as becon of hope … not anymore !!

  • Greg Mahlknecht

    Wikipedia “Credit Ratings” and educate yourself. We’re BB+ right now. It’s funny up to now you’ve been arguing over something you admit you didn’t even know the meaning of!

    “Under his watch SA dropped standards” – how exactly? Google Gigiba, and you’ll find a trail of failure that he’s left. Gordhan has a fine track record of success, and is respected the world over by his peers.

    I certainly don’t trust Malema, he’s a vile racist. He wants to steal my land, and occasionally kill me. I was just illustrating that even the most staunch ANC defender has their limits with their corrupt leadership.

  • Leko

    I can tell you’re clueless about what these credit ratings serves , nothing actual but predictions over observed economic trends , policies , and politics in general . but the outlook of governments economic policies and conduct are . ratings are not only limited on the major three or two . Prove me wrong by facts .
    Pravin was tolerated but not highly respected , and the world conduct its businesses professionally … SA’s inability to grow or recover from stagnation shock happen under Pravin’s tenure . Up-to-date stacked up .

  • Greg Mahlknecht

    >I can tell you’re clueless about what these credit ratings serves

    Dude.. you don’t even know what they MEAN!

    > Prove me wrong by facts

    I did.

  • Leko

    I don’t often laugh out loud ALONE , I can tell you’re … dumbfounded … but then you’re enlightened !!