Fitch downgrades South Africa to junk status following political turmoil

Ratings agency Fitch followed S&P on Friday in downgrading South Africa to ‘BBB-’ from ‘BB+’ in the wake of political turmoil which has seen several government ministers replaced and country-wide protests on Friday.

President Jacob Zuma has faced calls to step down from his position after he removed former finance minister Pravin Gordhan and several other cabinet members last week, sending the rand spiralling lower by 10%.

Fitch commented that the government reshuffle is likely to have a direct effect on economic policy, with Gordhan widely considered to be a safe pair of hands. He was replaced by Malusi Gigaba.

Fitch commented that the government reshuffle is likely to have a direct effect on economic policy

Foreign and local currency bonds were downgraded to the ‘junk’ level, following a similar move from the S&P rating agency earlier this week.

“In Fitch's view, the cabinet reshuffle, which involved the replacement of the finance minister, Pravin Gordhan, and the deputy finance minister, Mcebisi Jonas, is likely to result in a change in the direction of economic policy,” Fitch said in a press release.

"The new finance minister has stated that he does not intend to change fiscal policy and remains committed to expenditure ceilings that have been a pillar of fiscal consolidation. However, Fitch believes that following the government reshuffle, fiscal consolidation will be less of a priority given the president's focus on ‘radical socioeconomic transformation’."

Meanwhile, protests took place on Friday across several South African cities, calling for Zuma to resign. Demonstrators took to the streets in Cape Town, Durban and Pretoria in addition to other major cities.