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Ratings agency Standard & Poor’s drops South Africa to junk

South Africa’s rand tumbled on today afternoon after credit ratings agency Standard & Poor’s downgraded the country’s the credit grade to junk status, saying political and institutional uncertainty after a cabinet reshuffle by President Jacob Zuma last week had placed fiscal and growth outcomes at risk. The agency said the downgrade reflects its view that the divisions in the African National Congress government, especially the firing of respected finance minister Pravin Gordhan, who was replaced by an ally of President Jacob Zuma last week, have put policy continuity at risk.

“In our opinion, the executive changes initiated by President Zuma have put at risk fiscal and growth outcomes,” S&P said in a statement. “The negative outlook reflects our view that political risks will remain elevated this year, and that policy shifts are likely, which could undermine fiscal and economic growth outcomes more than we currently project.” The rand has been falling against major currencies while the ruling African National Congress has been in turmoil since Zuma fired Gordhan, who was seen as a bulwark against corruption.

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Economists had predicted that South Africa, which saw economic growth of just 0.5 percent last year and has an unemployment rate of around 27 percent, would be downgraded to junk status by credit ratings agencies. South Africa is rated one notch above junk at Fitch and two notches above junk at Moody. The downgrading by S&P indicates that Zuma’s firing of Gordhan will have negative economic consequences for South Africa. Zuma’s Cabinet reshuffle, in which he also sacked some critics, has brought an official request by the opposition Democratic Alliance for a vote of no confidence in parliament and plans for protest marches.

Calls have been growing for Zuma to step down since August last year when the ANC lost control of key metropolitan areas in local elections, partly because of dissatisfaction with the president’s performance. Top members of the government and the ANC are openly criticizing Zuma. At the weekend Deputy President Cyril Ramaphosa called for his countrymen to get rid of “greedy” and “corrupt” people.