National Treasury director general Lungisa Fuzile.
Cape Town – Treasury won’t allow legal action against Finance Minister Pravin Gordhan to derail preparation for the mini budget on October 26, its chief indicated on Wednesday.
Treasury remains “resolute to make sure that on that date, we are able as a team – led by Minister Gordhan and (Deputy Minister Mcebisi) Jonas – to table yet another medium-term budget statement (mini budget)”, Treasury director general Lungisa Fuzile told Bloomberg in a televised interview on Wednesday.
He conceded that the National Prosecuting Authority's (NPA's) move “does unsettle things a bit” and said: “Any noise or the developments that we saw yesterday would unnerve investors, but we would hope that in time they will see through this and as things settle down, the rand might retrace its trend.”
The NPA said it would prosecute Gordhan and two others for fraud over the early retirement of former deputy South African Revenue Service commissioner Ivan Pillay.
Most analysts believe the charges are thin and question the timing of the announcement. Even President Jacob Zuma - on an official trip to Kenya - pleaded for authorities to tread carefully on Tuesday.
“Gordhan is innocent until and unless proven otherwise by a court of law,” he said.
“The decision by the NPA came at the most sensitive time for the country when Minister Gordhan was successfully leading initiatives towards economic revival, bringing together business, government and labour in efforts to reignite growth so that jobs can be saved and created,” Zuma said.
The rand tanked 2.93% on the news on Tuesday, while the six-member FTSE/JSE Africa Banks Index dropped 3.6%, losing about R34bn in value.
WATCH: Full Bloomberg interview with Treasury director general Lungisa Fuzile
READ: Rand still roiling from Gordhan bombshell
Concerned investors who were part of Treasury’s recent roadshow in New York called Fuzile on Tuesday, following the NPA’s announcement. “They are concerned, and indeed some of the movements in the currency do reflect that,” he said.
The preparation for the mini budget and efforts to reignite growth by restoring investor confidence would be better served without developments as experienced on Tuesday, he said.
Analysts have cautioned that the latest move could be the final straw for rating agencies, who can at any moment downgrade the country to junk status, or below investment grade. This would have dire consequences on an economy battling to stimulate economic growth.
Fuzile said rating agencies have not yet contacted Treasury regarding the latest developments.
“I am sure they will be monitoring the situation,” he said. “We will be communicating to them what is happening.”
READ: Picture proof that NPA charges against Gordhan trumped-up
Fuzile said Treasury will communicate its fiscal plans contained in the mini budget and developments since the February Budget statement.
Umkhulu Consulting analyst Adam Phillip explained that local bonds were down about 1.5%, but said the really important instrument is the credit default swap (CDS), which rose to 266 basis points.
“This is now higher than Turkey's CDS and they were downgraded recently,” he said.
Asked to explain Treasury’s response to this, Fuzile said he hopes the substance of the mini budget plans “will go a long way towards alleviating whatever concerns they have".
“And I would hope that no developments will add to the widening of those CDS spreads,” he said.
“If anything, there may be developments on the positive side that will begin to cause them to tighten even more.”
(Left to right) Treasury director general Lungisa Fuzile, Finance Minister Pravin Gordhan and President Jacob Zuma in a meeting this year. (GCIS)
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