While SA waits for the outcome of the Hawks probe against finance minister Pravin Gordhan, economists warn that the SA rand will further plunge to as low as R19 to a US dollar.
Economists warned that the SA rand, which has faced tougher times in the past months, will further be weakened for the rest of the months that will end the year 2016 as a result of the recent Hawks investigation against the finance Minister.
Investec economist Annabel Bishop said if the finance minister is eventually kicked out from his role at the National Treasury, the rand could see itself at R19 to the dollar – or worse, depending on the subsequent fallout.
He said the currency could even go as low as R30 to the Dollar if credit downgrades exert much pressure and push South Africa’s economy to default.
Reuters poll noted that 19 out of 23 economists predict that South Africa would be cut to junk status in December by at least one ratings agency (likely S&P Global) which will equally have impact on the SA rand, giving it a 7.5% drop in value. This would push the rand to around R16 to the dollar – not taking into account the long-term effects, which would not be positive.
Speaking further on this, Rashaad Tayob, a money manager at Abax Investments in Cape Town said: “If Gordhan goes it’s an indication that the government is happy for us to get downgraded,”
Tayob also predicts that yields may rise as much as 200 basis points if Gordhan is replaced by a candidate less trusted by investors.
“A non-credible candidate could bring several years of economic instability to the country and in that type of environment you need very significant risk premiums to be holding South African bonds.”
Hawks probe of the finance minister have raised much concern to south Africans, especially the foreign investors who fear for another economic fall out after their experience in December 2015 when the then finance minister Nhlanhla Nene was booted.
Bloomberg market said the finance minister Pravin Gordhan saved the country from getting to junk status this year through his pledge to curb spending and debt at a time when Zuma’s allies in the ruling African National Congress are calling for a “re-prioritization” of the budget following setbacks in local government elections.
To this, Colin Coleman, partner and head of Goldman Sachs in South Africa, said the underlying issue between the minister and the hawks is the political agenda driving attacks on the minister.
According to consensus among economists, junk status for South Africa is looking 80% likely (up from 70% before the Sars Wars saga hit headlines again).
Economists worry that if Gordhan goes, he will be replaced by someone who is not as committed to fiscal discipline, and will rubber-stamp payments to SOEs and other draining ventures
But ANC deputy secretary-general, Jesse Duarte, noted that there has been no talk within the party of a Cabinet reshuffle, and she called on all South Africans to calm down and stop all speculations.