The Chamber of Mines on Tuesday said Standard and Poor’s downgrading of South Africa’s sovereign debt rating to junk status was “a consequence of the illogical and damaging Cabinet reshuffle by President [Jacob] Zuma”.
S&P on Monday lowered the country’s long-term foreign currency sovereign credit rating from ‘BBB-‘ to ‘BB+’, which is one notch below investment grade, or so-called junk status.
The international ratings agency said it was their opinion that “the executive changes initiated by President Zuma have put at risk fiscal and growth outcomes”.
Zuma last week fired Pravin Gordhan as finance minister and replaced him with former home affairs minister Malusi Gigaba, a move that saw the rand weakening by at least five percent.
The Chamber of Mines said in a statement that the result of the credit ratings downgrade were “significantly detrimental” for the entire country.
“The firing of a competent, dedicated and globally well-respected finance minister, Mr Gordhan, and other Cabinet changes, have materially negatively impacted the key institution of Treasury and ultimately the credit worthiness of South Africa’s government,” the Chamber said.
“The downgrade will raise the cost of capital, increasing government and private borrowing costs, increasing the portion of government revenue that has to be allocated to covering debt service costs – thus crowding out other key government programmes, weakening the currency, raising inflation and, ultimately affecting investment, growth, employment creation.
“The poor will be especially impacted by higher inflation, less resources available for social grants, low investment, limited growth in employment opportunities, and poverty levels will rise.”
The Chamber also said “the irrational and unexplained decision by President Zuma to restructure cabinet has precipitated this crisis” despite the significant effort by business, working with Treasury, other government departments and organised labour over the past 18 months to ensure that South Africa retains its investment grade rating.
“Given that, in exercising his prerogative to appoint the country’s Cabinet, the State President must place the national interest first, the Chamber believes that the ANC and the people of South Africa should hold President Zuma to account,” the Chamber said.