Johannesburg - South Africa’s economy is staring down the barrel of a credit rating downgrade to junk status as the country’s finance minister is facing charges, says local economist Dawie Roodt.
National Prosecuting Authority (NPA) head Shaun Abrahams on Tuesday announced that Gordhan has been ordered to appear before court on a charge related to the early retirement of former deputy commissioner Ivan Pillay.
The NPA’s announcement came after Gordhan was instructed to report to the Hawks in August over investigations into a so-called South African Revenue Service (Sars) rogue unit.
Abrahams’ announcement rattled the markets as the rand shed over 3% in value to hover around the R14.28 level to the US dollar on Tuesday after 14:00.
The development further came as South Africa finds itself one notch above junk status from rating agencies such as Standard & Poor's (S&P) and Moody’s.
READ: LIVE: Gordhan charges are a pretext to stop him fighting corruption - SACP
Roodt told Fin24 that "it was pretty much a given even before this most recent development” that South Africa would be downgraded.
“I think we need a minor miracle not to be downgraded,” Roodt said.
“I think it's pretty much a given.
"The ratings agencies will act on a potential change in policy or policy uncertainty. Replacing a minister of finance will certainly lead to policy uncertainty,” Roodt told Fin24.
In June, rating agency Fitch affirmed South Africa's investment grade credit at one notch above junk, but warned that political and growth concerns should be addressed.
This followed rating reviews by Moody’s in May which affirmed South Africa’s ratings at Baa2/P-2, while S&P in June also affirmed its BBB- level for the country.
These reviews have come amid weak economic growth. In September, Sarb revised its growth forecast from 0% to 0.4%.
Weak environment
Apart from the political drama engulfing the country, Roodt said he’s concerned about the greater macro-economic situation facing South Africa.
"The environment is an environment with very weak economic growth, high levels of unemployment, high levels of poverty,” Roodt told Fin24.
"It's an environment where the opposition political parties are making inroads; it's an environment where food prices are going up. This is a dangerous environment and under these sort of circumstances, you need a steady hand and I'm afraid we don't have that.
“This can potentially add to the uncertainty and add to this volatile social economic environment of South Africa.
"I don't think it's going to lead to a revolution; I don't think it's an Arab Spring kind of thing. But I'm concerned about what's happening,” said Roodt.
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