Political turmoil in South Africa are downgrading their economy to Junk status

The rand is declining and people in South Africa want President Jacob Zuma to resign. South Africa are in its worst political crisis in a decade, and the economy is growing at the slowest pace since the 2009 recession.

Africa`s former President Kgalema Motlanthe also wants President Jacob Zuma to resign, joining calls by the African National Congress’ (ANC) ally in government the South African Communist Party.

ANC came to power under Nelson Mandela.

 

 

Yesterday, SP Global Ratings downgraded South Africa`s sovereign credit rating to BB+ grade, saying that the recent firing of the internationally respected finance minister posed a risk fiscal policy.

S&P downgraded South Africa to junk. Another rating agency, Moody`s, which has South Africa two notches above «junk» status, are planning to deliver a review on Friday. Fitch is in the middle with only one, which means three different views.

The agency said the outlook is very «negative» claiming it is a political risk that will remain elevated for the rest of this year. We also might see political shifts that would undermine fiscal and economic growth outcomes more than the agency projects.

The rand plummeted right after President Jacob Zuma fired his well-respected finance minister Pravin Gordhan last week during an overnight Cabinet shuffle. The rand plummeted about 5 percent in the aftermath.

President Jacob Zuma has survived several no-confidence votes in recent years, and some analysts say they belive the no-confidence vote is unlikely to pass.

It`s a 400-member parliament in Africa, and the ANC commands a strong majority in the parliament with 249 seats. The opposition must have at least 50 votes in favor by ANC politicians for a no-confidence vote to pass.

Investors want a bigger premium over Treasuries to hold South African dollar-denominated debt than Russia or Brazil. Both are junk credits.

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Shiny bull. The author has made every effort to ensure accuracy of information provided; however, neither Shiny bull nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Shiny bull and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

 

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