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SA almost certain to face junk status by end of year - analyst

Mar 21 2016 10:39

Cape Town - Political analyst Daniel Silke believes South Africa is highly likely to face a credit downgrade to junk status this year, although such a move is not yet imminent. 

In a studio interview with News24Live, Silke pointed out that a downgrade by Moody's will take South Africa formally to one notch above junk and not to junk status itself. "But it's a sign to the other rating agencies - to Standard and Poor's and to Fitch - who themselves might downgrade us and they of course are simply one notch above junk, so if they downgrade us, we are effectively junk.

"This could occur during the course of the year, mid-year, latter part of the year. I don't think it's absolutely imminent and I think the rating agencies themselves might be looking for some degree of political direction to see where the country is going, but it's very possible that by the end of this year we may well see a ratings agency downgrade and that would push us to junk level."

This carries extremely serious implications, said Silke, with the biggest issue the cost of raising capital, whether it is from government, municipalities who need to raise capital on global markets or the business sector. He made the point that private sector institutions themselves will also face a downgrade as a result of the national downgrade.

"So it could be extremely damaging for South Africa's economy and I'm afraid to say that unless there is a dramatic about-turn that will require political will, political buy-in and.. a review of government's ideological stance when it comes to making policy, we will face that ratings downgrade," said Silke.

"There's a chance it can be staved off, but the political turnaround that's needed in government and the change of thinking seems to be again a bridge too far, certainly in terms of the current composition of the ANC."

Turning to the Hawks saga, Silke said that much of this would depend on the broader picture, which is the Gupta-Jacob Zuma saga. "If Jacob Zuma is really weakened through this, Gordhan will retain his position and I think perhaps even be emboldened." He believes that because of the events of the past few days, there is now a direct linkage between the authority Jacob Zuma has and the continued position of Pravin Gordhan.

"If Zuma continues to be president of South Africa for the foreseeable future, he either will have the power to hire and fire - which could include Gordhan - or he will be removed from having such power; his hands will be tied." This, in effect, will make him a president with a minder. "Already, one could argue that Pravin Gordhan is the minder Jacob Zuma."

If Deputy Finance Minister Mcebesi Jonas - who has made dramatic allegations about the Gupta family offering him the finance minister post - loses his job in a cabinet reshuffle over the course of the next few weeks, Gordhan may be in danger as well, said Silke.

"So there are multiple linkages now in this whole saga between one side and another side. It's almost like a house of cards - it either remains up or in fact it all tumbles down." South Africa is entering a very dangerous and volatile period, said Silke.

"It's probably necessary for us to flesh it open, but how the cards stack up at the end of it all is going to be a question that is unresolved and will be unresolved even after this weekend's NEC meeting."


anc  |  jacob zuma  |  pravin gor­dhan  |  downgrade  |  sa economy


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