Goldman Sachs Says Rand Will Buckle If Pravin Gordhan Is Charged

South African Rand Caught in Turmoil of Split ANC

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

The currency has slumped 6.2 percent since Aug. 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 has 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, a claim he’s rejected.

“The underlying issue is what is the political agenda driving this attack on the minister,” Colin Coleman, partner and head of Goldman in South Africa, said in an interview with Bloomberg TV on Monday. “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 percent to 14.4817 per dollar by 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 percent.

To watch the Bloomberg TV interview, click here

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. He 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 “re-prioritized” following its election drubbing earlier this month.

Fitch Ratings Ltd. 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 downgrade.

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