Analysts warn of junk rating after Gordhan sacking

Financial analysts have voiced their concerns about president Jacob Zuma’s decision to remove Pravin Gordhan late on Thursday night, noting that the country was now on course for multiple downgrades and a junk status.

Zuma’s decision to replace Gordhan, who was popular with investors because of his efforts to rein in spending, came in the face of opposition from three of the top six members of the ANC and its alliance partner, the SACP, said analysts speaking to Bloomberg.

“Those walking into the Treasury tomorrow will not reassure anyone that the top institution protecting South Africa’s fiscal stability is in safe hands,” said Anne Fruhauf, vice president at New York-based risk adviser Teneo Intelligence.

This was echoed by Nicholas Spiro, a partner at London-based Lauressa Advisory who noted that in just over a year, Zuma had fired two well-regarded finance ministers.

“Unlike when Nene was fired, the opposition to Zuma within his government is now much stronger, presaging a full-blown political crisis. The rand will be punished even more severely and the whiff of a junk rating is in the air.”

Nomura research analyst, Peter Attard Montalto also believed the move would trigger multiple downgrades across the country.

“This is an attack… and will trigger multiple downgrades. As we’ve highlighted before while there are some fiscal risks, we are more worried about Treasury’s role in procurement, preventing corruption, and oversight of SOEs – including nuclear and banking,” said Montalto.

The rand continued its tumble on Friday, weakening 1.2% to R13.45 against the dollar by 08h55, after slumping 1.9% on Thirsday. It has given up 7.5% aginst the greenback since Monday, the most out of 150 currencies tracked by Bloomberg.

Read: This is an open attack on Treasury – and it’s not over yet: analyst

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Analysts warn of junk rating after Gordhan sacking