Johannesburg – International ratings agency Fitch's decision on Friday to downgraded South Africa’s sovereign credit rating to sub-investment grade, so-called junk status, just days after S&P Global also downgraded the country, clearly shows President Jacob Zuma's cabinet reshuffle was not in the national interest, the Banking Association of South Africa (BASA) said.
Fitch Ratings downgraded government’s long-term foreign and local currency debt to "BB+" from "BBB-" with a stable outlook, a non-investment grade rating. "The downgrading by Fitch, of both the foreign and local currencies of SA to sub-investment grade is devastating though not unexpected," BASA MD Cas Coovadia said.
"The fact that Fitch has directly attributed its downgrade to the actions of the president demonstrates in no uncertain terms the broad assertion that the cabinet reshuffle, although the prerogative of the president, was not in the national interest," he said. "A presidential prerogative cannot be exercised in a reckless manner with insufficient regard for the consequences of such prerogative. SA is now experiencing the dire consequences of the actions that started with the precipitous calling back of the previous minister from a critical roadshow.
"One has to ask if we would, as a nation, be in this position if we were not forced to abandon interactions with investors and rating agencies." It was critical that government and the governing African National Congress take heed as South Africa continued to slide backwards because of poor leadership and an inability to act in the national interest over what seemed to be the interests of the ANC itself.
This additional downgrade was of greater concern as it included a downgrade of the rand, after the local-currency rating was also lowered one level to junk. This would have an immediate and severe impact on the currency, would seriously impact on South Africa's ability to attract foreign investment, and would likely trigger a marked steep rise in prices of goods and services across the board, Coovadia said.