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Rand will 'buckle' if Gordhan is charged - Goldman Sachs

Aug 29 2016 12:48
Xola Potelwa and Mark Barton

Finance Minister Pravin Gordhan delivers his mini budget against the backdrop of a spate of wildcat strikes that rocked the SA economy and downgrades by international ratings agencies, Moody's and Standard & Poor's. (AFP)

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Johannesburg - South Africa’s credit rating would be cut and the rand would “buckle” if Finance Minister Pravin Gordhan were to be removed from his post, according to Goldman Sachs.

The currency has slumped 6.2% since August 23, when a news website reported that the Hawks police unit had summoned Gordhan in connection with an investigation into alleged irregularities at the tax-collection authority, which he headed from 1998 to 2009.

Gordhan has refused to report to police, saying he had done nothing wrong. Opposition parties and some independent analysts have accused President Jacob Zuma, 74, of trying to gain greater control of the National Treasury. He has denied the allegation.

“The underlying issue is what is the political agenda driving this attack on the minister,” Colin Coleman, partner and head of Goldman Sachs Group said in an interview with Bloomberg TV on Monday.

A looming downgrade?

“If the minister is arrested or charged, you will see the rand buckle further. It will be very badly taken by the rating agencies and will probably result in South Africa being downgraded.”

The rand slipped 0.8% to 14.4817 per dollar by 12 noon in Johannesburg, heading for the weakest close since July 15. Yields on benchmark government bonds due December 2026 climbed 14 basis points to 9.11%.

Gordhan was reappointed to the finance ministry in December after Zuma was forced to rescind a decision to replace Nhlanhla Nene as National Treasury head with a little-known lawmaker.

Gordhan has staved off a credit downgrade by pledging to reign in spending and limit debt at a time when the ruling African National Congress has called for the budget to be “reprioritised” following its election drubbing earlier this month.

Fitch Ratings and S&P Global Ratings affirmed South Africa’s long-term foreign currency rating at BBB-, the lowest investment grade, in June and said the government must take decisive measures to bolster growth, quell policy uncertainty and end political turmoil to avoid a future downgrade.

WATCH: The implications if Gordhan is removed from office


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