The rand/dollar exchange rate immediately depreciated by more than 40 cents against the dollar, and financial shares on the JSE were sold off. The market and political analysts now expect that Gordhan and Jonas will be replaced in an expected cabinet reshuffle within days.
The timing of this reshuffle may be seen as the right time, given the strong rand and that the Central Energy Fund will announce on Friday that the prices for both petrol and diesel will decrease despite the increase of 39 cents per litre announced by Gordhan during his Budget speech on February 22.
Consumers thus will not feel an immediate effect if the rand depreciates strongly in weeks to come. The Presidency may also have foreseen this as the best time to do such a reshuffle without the danger of a downgrading of South Africa’s sovereign debt to junk status by ratings agencies Moody’s and S&P Global Ratings.
Moody’s has put South Africa on negative watch in its latest review and is due to review the rating on April 7, followed by S&P at the beginning of June.
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Given the expected economic growth rate of 1.3 percent for 2017, as well as the much improved current account deficit that came down to only 1.7 percent of gross domestic product during the fourth quarter of 2017, the grading agencies may not downgrade South Africa’s sovereign debt to junk even if Gordhan is replaced. They may take a wait-and-see stance over the next six months up to the medium-term budget policy statement to see if the new minister has changed the fiscal stance.
If by any indication the medium-term budget framework is changed to reflect a populist fiscal stimulation just before the ANC’s congress to choose the replacement of Zuma, then a downgrading may be imminent.
The possible replacement of Gordhan at this stage can thus be recognised as maybe a brilliant strategical move of the Zuma camp.
Dr Chris Harmse is chief economist at Rebalance Fund Managers.