S&P Says South Africa Must Stick to Fiscal Targets to Avoid Junk

  • Political tension “a game changer,” S&P’s Reuss Says
  • Former Finance Minister Manuel says rating downgrade likely

South Africa needs to stick to its fiscal targets set in the budget if February if it is to retain its investment grade credit rating, S&P Global Ratings Ltd. said, as former Finance Minister Trevor Manuel warned that a downgrade to junk was likely.

South Africa is rated BBB- by S&P, which has a negative assessment on the country’s outlook and is to announce the outcome of its next review on Dec. 2. Political turmoil in South Africa, including a decision by prosecutors to charge Finance Minister Pravin Gordhan, has raised the risk of a downgrade.

“What has changed in South Africa is that political tension, political turmoil has come to the fore,” Konrad Reuss, S&P’s managing director for Sub-Saharan Africa, said at the Thomson Reuters Africa conference in Cape Town on Thursday. “I’m tempted to say that is a game changer compared to 10 years ago. We would be concerned if the current fiscal position is undermined. We want to see the minister and his team stick to the fiscal targets.”

After months of investigations, prosecutors on Tuesday summoned Gordhan to appear in court on Nov. 2 on charges of fraud over his approval of the early retirement and subsequent reappointment on a contract basis of a former colleague. That resulted in “fruitless” expenditure of 1.1 million rand ($77,000), they said. They’re also probing allegations that Gordhan oversaw the establishment of an illicit investigation unit when he was commissioner of the South African Revenue Service. Gordhan says the charges are baseless and politically motivated.

Priced In

Manuel, whose term as finance minister ended in 2009, said the decision to prosecute was reckless and a ratings downgrade had already been priced into South African assets.

“In many respects my sense is that the die is cast,” Manuel said in a speech in Johannesburg. “When the country gets downgraded to below investment grade, the people who pay the price are the poor because there’s less money available to deliver public service. It’s people who are more dependent on the state for their very existence who actually pay the price of the carelessness of some.”

Reuss said S&P would also take into account risks arising from South Africa’s lackluster growth when making its assessment. The country faced significant spending pressures, the trend line of its debt was going in the wrong direction and state-owned companies posed a risk to the fiscus, he said.

Deputy Finance Minister McEbisi Jonas will accompany President Jacob Zuma to the BRICS summit in India this weekend along with six other cabinet ministers, the president’s office said in a statement on Thursday.

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