Business

S&P Cuts South Africa’s Credit Rating to Junk

S&P Global has cut South Africa’s credit rating to junk status.

The ratings agency said that South Africa’s political upheaval, including the recent sacking of finance minister Pravin Gordhan, was endangering the economy.

S&P also expressed concern over government debt, and in particular the expense of supporting the state energy firm Eskom.

The news put more pressure on the rand, which was down 2% against the US dollar.

Pravin Gordhan’s sacking, seen as a safe pair of hands and with a reputation for financial prudence, led to a 4% fall in the rand on March 31 and prompted strong criticism.

His replacement as finance minister by Malusi Gigaba was part of a cabinet reshuffle by President Jacob Zuma.

However South Africa’s deputy president, Cyril Ramaphosa, called Pravin Gordhan’s sacking “totally, totally unacceptable” and the Gwede Mantashe, secretary-general of the ruling African National Congress (ANC), also opposed it.

The financial downgrading is likely to make it more expensive for South Africa to borrow money on the international markets, as lending to the country would be seen as riskier.

S&P explained its decision, stating that: “Internal government and party divisions could, we believe, delay fiscal and structural reforms, and potentially erode the trust that had been established between business leaders and labor representatives (including in the critical mining sector).”

“An additional risk is that businesses may now choose to withhold investment decisions that would otherwise have supported economic growth,” it added.

S&P also raised concern about the level of borrowing by state energy company Eskom.

The government guarantees 350 billion rand ($25 billion) of its debt, which is equivalent to about 7% of the nation’s economic output.

For his part, Malusi Gigaba spoke at the weekend of plans to “radically transform” South Africa’s economy.

While he has a track record of policymaking, most recently as home affairs minister, he lacks a background in economics.

That prompted criticism that Malusi Gigaba was too inexperienced for the job.

Clyde K. Valle

Clyde is a business graduate interested in writing about latest news in politics and business. He enjoys writing and is about to publish his first book. He’s a pet lover and likes to spend time with family. When the time allows he likes to go fishing waiting for the muse to come.

Recent Posts

Donald Trump and Elon Musk Celebrate Election Victory at UFC 309

Image source: Wikimedia Commons President-elect Donald Trump celebrated his election victory at the Ultimate Fighting…

4 days ago

White House 2024: Donald Trump Wins, Kamala Harris Calls Him to Concede Election

Millions of voters across the US chose to return Donald Trump to the White House…

2 weeks ago

Who Won? Donald Trump Declares Victory as He Addresses Jubilant Supporters in Florida

Donald Trump declares victory in the US election as he addresses jubilant supporters in Florida.…

2 weeks ago

Stocks Soaring as Donald Trump Closes in on US Victory

Stocks around the world are rising as Donald Trump appears to be on the cusp…

2 weeks ago

Who Won? Kamala Harris Cancels Election Night Party as Path to Victory Narrows

Donald Trump has won Pennsylvania, North Carolina and Georgia and taken a lead over Kamala…

2 weeks ago

Quincy Jones Dead at 91

Quincy Jones, the celebrated musician and producer who worked with Michael Jackson, Frank Sinatra, Ray…

2 weeks ago