Economists say that if current finance minister, Pravin Gordhan stepped down from his role, it would have disastrous financial consequences for South Africa.
Bloomberg reports that Gordhan continues to be undermined by president Jacob Zuma, putting the finance minister under enormous strain.
According to a report in Business Day, Gordhan threatened to quit Cabinet on the eve of the budget speech in February, amid rising tensions between him and SA Revenue Services (SARS) commissioner Tom Moyane.
The minister sent an ultimatum to president Zuma calling for Moyane’s resignation.
Moyane led an investigation into an alleged ‘rogue unit’ at SARS, which reportedly used illegal methods to gather information on senior officials. He also commissioned a report which fingered Gordhan as the person responsible.
After tensions between the two became public, Zuma was forced into action – and according to Cabinet, the president is looking to sort the matter out, himeself.
“President Zuma is dealing with the matter of the South African Revenue Service Commissioner and the Minister of Finance through the correct channels using correct legal prescripts,” the Cabinet said in a statement.
“The president is putting measures in place to address the issues responsibly and amicably for the benefit of all.”
What if Gordhan quits?
South Africa’s credit rating is currently at risk of falling into junk status, and the economy is forecast to grow at the slowest pace since a 2009 recession- putting the country in a very precarious position.
“The pressure is on (Gordhan) to fight it out,” said Daniel Silke, the director of Political Futures Consultancy.
“If the position becomes that untenable or he is intimidated to the point where he simply wishes to throw in the towel, it’s obviously his prerogative to do so. He would then witness what could be a disastrous market reaction.”
Kevin Lings, economist at Stanlib Asset Management, said that the rand could quickly fall to R18 versus the dollar, from its current R15.35, and may even fall to R20, while a downgrade would also become more likely if Gordhan stepped down.
“It would be catastrophic in terms of investor perception,” Lings said. “The reaction would depend to some extent on what the circumstances were and who you replaced him with. Pravin does instill confidence domestically and internationally in South Africa’s fiscal management.”
According to Ian Cruickshanks, chief economist of the South African Institute of Race Relations, the Hawks current probing of minister Gordhan, would have needed Zuma’s approval.
The Hawks have sent Gordhan 27 questions, relating the the so called rogue unit’. The minister fired back on Wednesday that he needed more time to answer them.
“A lot hangs on Gordhan remaining in his post. If he resigns we will have another bloody day on the forex and bond market,” Cruickshanks said.
The last time a finance minister left his post in South Africa, the rand plunged to its lowest ever levels against the dollar, while the country saw R500-billion wiped from its equity and bond markets.