The 'die is cast' for junk status downgrade – Manuel Former South African Finance Minister Trevor Manuel on Thursday warned that a downgrade to junk was likely.Political turmoil in South Africa, including a decision by prosecutors to charge Finance Minister Pravin Gordhan, has raised the risk of a downgrade.
After months of investigations, prosecutors on Tuesday summoned Gordhan to appear in court on 2 November on charges of fraud over his approval of the early retirement and subsequent reappointment on a contract basis of a former colleague.
That resulted in “fruitless” expenditure of R1.1 million, they said. They''re also probing allegations that Gordhan oversaw the establishment of an illicit investigation unit when he was commissioner of the South African Revenue Service. Gordhan says the charges are baseless and politically motivated.
S&P and Fitch Ratings both have South Africa''s credit rating at BBB- with a negative outlook, which is one notch above junk status. Moody''s rating is slightly better at Baa2 with negative outlook. S&P is set to deliver its next ratings review on 2 December.
Manuel, whose term as finance minister ended in 2009, said the decision to prosecute was reckless and a ratings downgrade had already been priced into South African assets.
“In many respects my sense is that the die is cast,” Manuel said in a speech in Johannesburg.
“When the country gets downgraded to below investment grade, the people who pay the price are the poor because there''s less money available to deliver public service.
“It''s people who are more dependent on the state for their very existence who actually pay the price of the carelessness of some.”
South Africa needs to stick to its fiscal targets set in the budget if February if it is to retain its investment grade credit rating, Standard & Poor''s (S&P) Global Ratings said on Thursday.
“What has changed in South Africa is that political tension, political turmoil has come to the fore,” Konrad Reuss, S&P''s managing director for sub-Saharan Africa, said at the Thomson Reuters Africa conference in Cape Town on Thursday.
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