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South Africa credit rating drop to junk, rand decline
Decline of rand

The cartoon shows the declining rand following the dropped credit ranking.

 

On Monday, credit ratings agency, Standard and Poor’s (S&P) had demoted South Africa’s credit rating to junk status from BBB- to BB+. Following the junk status, the rand declined further against the United States (US) dollar.

 

The junk status in addition with last week controversial cabinet shuffle has pressured President Jacob Zuma. Last week, he fired several critical ministers including finance minister, Pravin Gordhan. Gordhan had been replaced with loyalist and former home affairs minister, Malusi Gigaba.

 

S&P viewed the demoted rating as a reflection of the heightened political affairs and institutional uncertainties in South Africa. Zuma’s action had put the fiscal and growth outcomes at risk. Political risks is at large as there is likelihood of policy shifts.

 

Since last Friday, the rand which had suffered a 5% percent drop further declined by 2% against the US dollar on Monday. The rand had dropped almost 10% in the past month.

 

Another credit rating agency, Moody’s Investors Service is reviewing the country’s rating for a downgrade. They had previously rated South Africa two ratings above the junk status.

 

Opposition parties is going to proceed with vote of no confidence against Zuma. Zuma had been asked to step down several times but he managed to remain the President all this time.

 

In order for the vote of confidence to succeed, the opposition have to secure at least 50 votes from African National Congress (ANC) lawmakers to obtain simple majority.

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