NEWS

After The Cabinet Reshuffle, Brace Yourselves For More Bad Times Ahead

A ratings downgrade is now almost inevitable, economists say.

31/03/2017 12:05 SAST | Updated 31/03/2017 14:14 SAST
Siphiwe Sibeko / Reuters
Protesters chant slogans in front of a barricade during a protest demanding free education, at the Vaal University of Technology in Vanderbijlpark, South Africa,October 13,2016.

The economic result of President Jacob Zuma's decision to fire Finance Minister Pravin Gordhan is almost certainly going to be very negative. The threatened downgrade for South Africa's credit rating is now almost certain, according to economists.

The immediate effect, on top of the rapidly-depreciating rand and bond markets, is that the ratings agencies will all but confirm the junk status rating in July, said Pan African Investment and Research Services CEO Iraj Abedian.

"People are already talking of capital flight. All of this negative pressure will percolate throughout the economy. How this develops further depends on how quickly the new finance team can get going," he said.

On Friday morning, the rand experienced its biggest slide since 2013.

It's important to understand that South Africa is already going through economic hardship, and that it is only going to get worse, said Efficient Group's Chief Economist Dawie Roodt.

"The uncertainty of the Zuma presidency has affected the economy for a few years now. We've barely had any economic growth over the last few years. When the rand recently hit R12.33, people were saying it was strengthening. It wasn't a strong position, the rand should be trading at a much stronger rate. So we are still paying, and we will continue to pay," he said.

"It's likely that the bad times will continue. If things stay as they are politically, the rand will continue to weaken. Poverty, unemployment, and the rate of inflation will continue to go up. It is going to be very painful for us," Roodt said.

He also believed that the international ratings agencies will downgrade the South African note. "[In December] the ratings agencies gave us a last chance. They had very good relations with Pravin Gordhan. That is what the cancelled trip was about. All that has been shattered now. Even if Malusi Gigaba proves to be a good finance minister, he will need time to re-establish that trust."

Protest Action In Response To Jacob Zuma's Reshuffle