S&P downgrades South Africa’s credit rating to ‘junk’

Credit rating agency Standard and Poor’s (S&P) has downgraded South Africa’s rating to junk status, as the country’s currency continued to slide following a major cabinet reshuffle.

In an unscheduled review that prompted a sell-off in South African assets, S&P on Monday cited the impact of divisions in the government of President Jacob Zuma that led to leadership changes, including the departure of former Finance Minister Pravin Gordhan.

“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 industrialised economy a negative outlook.

The rand, which has fallen 3 percent against the US dollar since the Friday night shake-up, tumbled further after the downgrade.

S&P also said that “political risks will remain elevated this year, and that policy shifts are likely, which could undermine fiscal and economic growth”.

Following S&P’s announcement, South Africa’s Treasury expressed its commitment to a responsible fiscal path. 

“South Africa is committed to a predictable and consistent policy framework, which responds to changing circumstances in a measured and transparent fashion,” it said in statement.

Moody’s, another ratings agency which has South Africa two notches above “junk” status, is expected to deliver a review on Friday.

Reshuffle backlash

Zuma, the head of the ruling African National Congress (ANC), has faced widespread criticism for replacing Gordhan with Malusi Gigaba, a former home affairs minister.

All of South Africa’s main opposition parties have condemned the move, as has deputy president Cyril Ramaphosa, an ANC member, and the communist partners in the ANC’s coalition government.

Shortly after his appointment, Gigaba stressed the need to maintain South Africa’s investment grade status.

READ MORE: Malusi Gigaba – Need to ‘radically transform economy’

The country was granted a reprieve at the end of last year when rating agencies did not drop it to the “junk” investment category following a series of downgrades.

South Africa’s opposition parties on Monday vowed to press ahead with a no-confidence vote against Zuma, who has survived several no-confidence votes in recent years.

The opposition call came as the ruling ANC’s own integrity commission delivered a stinging rebuke over Zuma’s cabinet shuffle, saying it was “deeply perturbed” by the lack of consultation, according to media reports.

With 249 seats, the ANC commands a strong majority in the 400-member parliament.

For a no-confidence vote to pass, the opposition would have to secure a simple majority – meaning it would need to secure at least 50 votes in favour by ANC politicians.

Analysts say they believe the no-confidence vote is unlikely to pass.