Zuma calls for calm after sovereign debt downgrade

Economists had seen it coming. On Monday, credit ratings agency Standard & Poor's (S&P) downgraded South Africa's sovereign debt to junk status.

"In our opinion, the executive changes initiated by President Zuma have put at risk fiscal and growth outcomes," S&P said in a statement.

The "executive changes" refer to Zuma's cabinet reshuffle on Friday, which included the shock dismissal of respected Finance Minister Pravin Gordhan and his deputy Mcebisi Jonas.  

Fiscal policy: no change

On Tuesday, new finance minister Malusi Gigaba said the downgrade meant the government had to focus even harder on growing the economy. He also promised to address issues raised by the rating agencies.  

Gigaba said the government's fiscal policy would remain unchanged despite the switch in finance ministers.

Zuma also said there would be no change in fiscal policy and urged South Africans to remain calm.

He also called on his cabinet to reach out to and reassure international investors following Gordhan's dismissal.

S&P's move will almost certainly lead to a rise in the cost of servicing debt, which will mean less money for critical services such as housing, education and sanitation.

Mark Heywood of South Africa's Section 27 social movement said the downgrade was a "bread and butter issue" for the people. It would mean "increasing food prices, possible increasing electricity prices, increasing medicine prices and job losses."

This could in turn incite even more protests over service delivery  that have already rocked towns across the country.

Boost for Zuma's opponents

Political analyst Daniel Silke said the road to recovery from junk status would be long and arduous and it "won't be possible with the current policy and politics in place."

Economist Azar Jammine from Econommetrix told DW that S&P had not only given South Africa junk status but junk status with a negative outlook. "This means next time round they expect us to go down even further." Local currency debt could be relegated to junk status next time and the rand "could take a huge knock and that would cause inflation to rise."     

John Ashbourne Africa analyst at Capital Economics said the opposition were likely to try and make political capital of S&P's decision.

"The loss of the rating will bolster opponents of President Zuma, who will use it as evidence that his recent reshuffle is harming the country" he said.

Further evidence of growing political pressure on Zuma emerged on Tuesday when the country's largest trade union confederation, the Congress of South Africa Trade Unions (COSATU) said it no longer trusted Zuma's leadership after his decision to sack Gordhan. COSATU Secretary General Bheki Ntshalintshali said Zuma was no longer the "right person" to lead the country. COSATU belongs to the government Tripartite Alliance of the ANC and the South African Communist Party    

S&P is one of three ratings agencies which control around 95 percent of the ratings business. The other two are Moody's and Fitch. Moody's was expected to review its Baa2 rating for South Africa, which is two notches above sub-investment grade, on Friday. It has since postponed its review. Fitch, which rates South Africa's sovereign debt one notch above junk, is not bound by a timeline.

Institutional investors rely on sovereign credit ratings to assess a particular country's investment climate. They will often consult them before weighing up specific companies or industries.   

South Africa's ANC Youth League, one of Zuma's main allies, said defiantly that it could not accept the downgrade. "If the downgrade results in us being a country with no money, then we will be left with no option other than to take our mineral resources and ensure that they serve our country," said Youth League official Sifiso Mtsweni.

Subry Govender in South Africa contributed to this report