KPMG’s comment on South Africa’s sovereign rating downgrade
On 30 March 2017, President Jacob Zuma announced a reshuffle of his Cabinet. Across the country, South Africans united behind the idea that there was little merit in these changes. Even African National Congress (ANC) Secretary General Gwede Mantashe expressed discomfort with the fact that well-performing ministers were removed from Cabinet while underperforming ministers were left in the executive. Specifically, there was widespread outrage about the dismissal of Finance Minister Pravin Gordhan and his deputy, Mcebisi Jonas, with ANC Deputy President Cyril Ramaphosa saying that this was “unacceptable”.
On the day after the midnight reshuffle, Fitch Ratings commented that the changes – including the dismissal of Mr Gordhan and his deputy – signal “a change in policy direction” that could “potentially weakening public finances and standards of governance”. The ratings agency believes that “fiscal consolidation is likely to become less of a priority” and that recent momentum in improving transparency and governance of state-owned enterprises (SOEs) “will be halted”. As a result, SOEs’ liabilities – and therefore contingent liabilities to the government – “will probably grow more rapidly”. Furthermore, Fitch believes the reshuffle “will heighten tensions within the ANC and increase political instability. The agency is expected to formally review South Africa’s rating by the start of June. Moody’s Investors’ Service has also placed its ratings for South Africa on review, giving it three months to decide about a downgrade (or not).
As S&P downgrades South Africa to non-investment grade, what does this mean for the economy? Get the facts and statistics by downloading our comment on South Africa’s sovereign rating downgrade.
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