The S&P cut South Africa to junk.
And the South African rand is tumbling. It’s down by 1.9% at 13.6823 per dollar as of 11:39 a.m. ET.
The downgrade reflects the agency’s view that the divisions of the ANC-led government that have led to changes in leadership – including the recent sacking of the finance minister – have put policy continuity at risk, S&P said.
Moreover, the agency said the outlook is “negative,” which reflects its views that political risks will remain elevated this year, and that the country might see policy shifts that would “undermine fiscal and economic growth outcomes more than S&P currently projects.”
South African president Jacob Zuma fired his well-respected finance minister Pravin Gordhan last week during an overnight Cabinet shuffle. The rand rumbled by about 5% in the aftermath.
"[W]e doubt that the [downgrade] will have a significant market impact," John Ashbourne, Africa economist at Capital Economics, wrote after the news crossed. "Crucially, it is important to remember that there is relatively little evidence that ratings agencies drive market movements."
"The downgrade will probably have a more significant political effect. 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 added. "The previous finance minister used maintaining the rating as a key rallying call in justifying politically-painful fiscal tightening. His replacement has seemed to downplay the importance of the rating, suggesting that fiscal policy will loosen."