South Africa has suffered a downgrade by rating agency S&P in the light of political uncertainty and high government borrowing. Timothy Conley reports.

S&P Global has lowered South Africa’s long-term currency sovereign credit rating amid president Jacob Zuma’s cabinet reshuffle. 

Mr Zuma’s decision to dismiss former minister of finance Pravin Gordhan in favour of Malusi Gigaba has created political and economic uncertainty for business leaders in South Africa. 

“Internal government and party divisions could, we believe, delay structural reforms, and potentially erode the trust that had been established between business leaders and labour representatives,” S&P said in its rating action report. 

South Africa’s credit rating has been reduced from BBB- to BB+, which is considered to be one tier below junk status according to the S&P index. 

Besides Mr Zuma’s reshuffle, S&P has pointed out the excessive level of government borrowing from state energy firm Eskom. The government has guaranteed Eskom with about R350bn ($25.4bn) over the next year, which amounts to 7% of the country’s estimated gross domestic product for 2017, said S&P. 

South Africa’s ‘junk’ status is already putting pressure on the rand, which was down by 2% against the dollar as of April 3. This poor credit rating is likely to hamper the country’s ability to borrow on international markets, because lending to it carries more risk. 

This article is sourced from fDi Magazine
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