Fitch’s downgrade is a vote of no confidence in finance minister’s ability to hold the fiscal line and stabilise debt

The new Minister of Finance, Malusi Gigaba’s, attempts to restore confidence and engage ratings agencies failed to convince Fitch Ratings (“Fitch”) not to downgrade South Africa.
The fact is that the decision by Fitch to downgrade our long-term foreign currency debt and long-term local currency debt to “BB+”, or “junk status”, with a “stable outlook”, is a vote of no confidence in the minister’s ability to hold the fiscal line and stabilise debt.
This should come as no surprise given that the minister is trying to convince the ratings agencies that he can hold the fiscal line and implement “radical economic transformation”, which is simply not credible.
It’s not good enough for the minister to simply concede the ratings downgrade was a “setback”. The minister needs to roll up his sleeves and get into the fight to avoid further ratings downgrades.
The minister’s number one priority should be to avoid the nightmare scenario where massive forced selling of our debt triggers an economic meltdown that will spare nobody, rich or poor.
This could happen if Standard & Poors and Moody’s downgrade our long-term local currency debt, which makes up about 90% of our debt, to “junk status”.
However, the problem is that the ratings agencies do not trust the minister: they regarded him as a presidential minion, ready to carry out any instruction, no matter how damaging to the economy.
To re-establish trust, the minister will have to show, rather than tell, ratings agencies that he is serious about avoiding further downgrades, by delivering “quick wins”, starting with saying “no” to bailouts for “zombie” state-owned entities, like the SABC.

Malusi Gigaba is Des van Rooyen in a designer suit

The appointment of the new Minister of Finance, Malusi Gigaba, has been a disaster for the economy of South Africa.
The minister’s first one hundred hours, in what he called the “hot seat”, has been a monumental shambles – the rand tanked, ten-year bond yields spiked and the country was downgraded to “junk status” by Standard & Poors.
This should not come as a surprise considering the minister’s weekend press conference, which was called to “restore confidence and restore calm”, but then proceeded to do exactly the opposite.
He suggested that:

  • policy changes could be expected when he committed himself to implementing “radical economic transformation”; and
  • that institutional changes could be expected at National Treasury, which he seemed to suggest was dominated by “orthodox economists, big business and international investors”.

And it got worse when the minister could not explain what “radical economic transformation” meant and was forced to concede there was still “a whole lot of clarification that we have to do.”
The minister then compounded the problem at today’s press conference,  which was called to do damage control following the downgrade to “junk status”, when he suggested that he was “committed to inclusive growth”, but had not abandoned “radical economic transformation”.
The minister’s damage control exercise was an own goal because it will give oxygen to the narrative that there is policy uncertainty and it will not go down well with the ratings agencies, which are concerned about possible “policy shifts” following the midnight cabinet reshuffle.
The fact is that the minister is just not up to the job and there is now a strong impression that: Malusi Gigaba is just Des Van Rooyen in a designer suit.

President Jacob Zuma must explain the bizarre recall of Pravin Gordhan

The fact that President Jacob Zuma has instructed the Minister of Finance, Pravin Gordhan, together with the Deputy Minister of Finance, Mcebisi Jonas, to cancel their international investor roadshow and return to the country immediately is a major setback for the economy in South Africa.
The instruction to cancel the international investor roadshow without explanation is so bizarre that it appears, at best, calculated to humiliate the minister or, at worst, to suggest that the minister is about to be fired in a cabinet reshuffle.
Whatever the case the instruction to cancel the international investor roadshow could not have come at a worse time as the minister battles to restore investor confidence among international investors in one of the financial capitals of the world.
The fact is that President Jacob Zuma must provide a public explanation for the fact that he has instructed the Minister of Finance, together with the Deputy Minister of Finance, to cancel their international investor roadshow and immediately return to South Africa.