Warning of South African junk status downgrade if Gordhan exits

A sovereign credit rating downgrade to junk status in December 2016, or even earlier, is highly probable if finance minister Pravin Gordhan suffers a similar or worse fate than his predecessor, Nhlanhla Nene.

This is according to Dr. Conrad Beyers from the Department of Actuarial Science at the University of Pretoria.

Yesterday reports emerged that Gordhan and other former SARS officials have been ordered to ‘present’ themselves at the Hawks’ offices to receive warning statements.

This news sent the rand plummeting against hard currencies, weakening to its lowest levels in weeks.

Some commentators see the Hawks’ investigation into Gordhan as a political move, masterminded by President Jacob Zuma’s camp.

This political instability, especially in the finance department, is not welcome in South Africa’s struggling economy.

“It is clear that credit rating agencies regard politically-related risks as the single major factor that may influence their ratings decisions for South Africa,” said Beyers.

“If you scrutinise rating agency reports on South Africa, as well as public statements and assessments by rating agencies, political risk currently vastly overshadows all other risks,” he said.

It is, however, not all doom and gloom. “On the positive side, the importance of political risks in South Africa implies that positive Government action can contribute significantly to create confidence,” Beyers said.

He said that such positive action by Deputy President Cyril Ramaphosa, Gordhan, and prominent business figures – the so-called Team South Africa – helped avert a seemingly inevitable ratings downgrade earlier this year

However, the opposite is also true. According to Beyers, a second major shock to the Treasury will likely confirm rating agency fears that there is a willingness in key government circles to sacrifice the country’s economic well-being for ulterior motives.

“Team South Africa convinced credit ratings agencies that the chaotic exit of Nene in December 2015 was a once-off event that will not be repeated,” said Beyers.

“The rating agencies apparently gave South Africa the benefit of the doubt. However, a similar chaotic exit of Gordhan will illustrate that the ‘Nenegate’ event was not once-off, and that more such shocks are likely in store for the future.”

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Warning of South African junk status downgrade if Gordhan exits