Worries over the health of South Africa’s economy continued on Monday, as comments by the new finance minister failed to stem a fall in the rand.
The value of currency fell 1.5% to a two-month low, continuing last week’s fall sparked by the sacking of finance minister Pravin Gordhan.
His replacement, Malusi Gigaba, spoke at the weekend of plans to “radically transform” the country’s economy.
But that failed to ease concerns that the country’s credit rating is at risk.
The sacking of Mr Gordhan, seen as a safe pair of hands and with a reputation for financial prudence, led to a 5% fall in the rand and prompted strong criticism. The dismissal was part of a cabinet reshuffle by President Jacob Zuma.
The ruling African National Congress’ deputy president, Cyril Ramaphosa, called Mr Gordhan’s sacking “totally, totally unacceptable” and ANC secretary-general Gwede Mantashe also opposed it.
Mr Gigaba said over the weekend that he had spoken to the credit rating agencies Moody’s and Fitch, amid fears that the political upheaval made a downgrade of South Africa’s sovereign debt to non-investment – or “junk” – grade almost inevitable.
‘Greatly exposed’
A downgrade would make it more expensive for South Africa to borrow money on the international markets, as lending to the country would be seen as riskier.
Moody’s is due to make its latest pronouncement on South Africa’s credit rating on Friday. It has the country two notches above junk status.
While Mr Gigaba has a track record of policymaking, most recently as home affairs minister, he lacks a background in economics. That prompted criticism that he is too inexperienced for the job.
“South Africa remains greatly exposed to a risk of a strong correction,” said Cristian Maggio, head of emerging markets strategy at TD Securities, adding that there was now a higher chance of a ratings downgrade by Moody’s on Friday.
“That is something the market is wary of as it would be a further step in the direction of a junk rating.”
In 2014, the ANC adopted “radical economic transformation” policies to boost the economic position of the black majority in the post-apartheid nation.
But many in the ruling party believe the process has been “too slow and in many instances superficial”, said Mr Gigaba on Saturday.
“The ownership of wealth and assets remains concentrated in the hands of a small part of the population,” he said.
But Mr Gigaba added that he did not “seek to implement a reckless lurch in a particular direction”.
“We will stay the course in terms of the fiscal policy stance approved by government,” the new minister said.
South Africa’s economy expanded by 0.3% in 2016, compared with 1.3% in the previous year.
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