S&P Global has cut South Africa’s credit rating to junk status.
The ratings agency said that South Africa’s political upheaval, including the recent sacking of finance minister Pravin Gordhan, was endangering the economy.
S&P also expressed concern over government debt, and in particular the expense of supporting the state energy firm Eskom.
The news put more pressure on the rand, which was down 2% against the US dollar.
Pravin Gordhan’s sacking, seen as a safe pair of hands and with a reputation for financial prudence, led to a 4% fall in the rand on March 31 and prompted strong criticism.
His replacement as finance minister by Malusi Gigaba was part of a cabinet reshuffle by President Jacob Zuma.
However South Africa’s deputy president, Cyril Ramaphosa, called Pravin Gordhan’s sacking “totally, totally unacceptable” and the Gwede Mantashe, secretary-general of the ruling African National Congress (ANC), also opposed it.
The financial downgrading is likely to make it more expensive for South Africa to borrow money on the international markets, as lending to the country would be seen as riskier.
S&P explained its decision, stating that: “Internal government and party divisions could, we believe, delay fiscal and structural reforms, and potentially erode the trust that had been established between business leaders and labor representatives (including in the critical mining sector).”
“An additional risk is that businesses may now choose to withhold investment decisions that would otherwise have supported economic growth,” it added.
South Africa’s President Jacob Zuma has announced he is replacing newly appointed Finance Minister David van Rooyen with Pravin Gordhan.
On December 9, Jacob Zuma sacked Nhlanhla Nene in a move that sent the rand to record lows and sparked a sell-off in bank shares.
Nhlanhla Nene’s replacement for less than a week, David van Rooyen, is a little known lawmaker.
The latest move sent the rand up almost 5% on December 13.
A more experienced Pravin Gordhan was widely respected when he served as South Africa’s finance minister from 2009 until 2014.
However, Mohammed Nalla, head of research at Nedbank Capital, said having a finance minister serve just two days did not bode well for South Africa’s reputation.
“International investors are probably thinking: why didn’t the president make a much more considered decision in the first place?” he said.
The leader of the opposition Democratic Alliance party, Mmusi Maimane, said: “This is reckless by President Zuma – he is playing Russian roulette with the South African economy.”
A statement from Jacob Zuma’s office said he had “received many representations” to reconsider his decision to appoint David van Rooyen.
“As a democratic government, we emphasize the importance of listening to the people and to respond to their views,” it added.
Credit agency Fitch downgraded South Africa earlier this month, leaving the country just one notch above “junk” status. It said on December 10 that Nhlanhla Nene’s sacking “raised more negative than positive questions”.
Nhlanhla Nene’s reluctance to approve a plan to build several nuclear power stations at a cost of up to $100 billion is thought to have contributed to his removal as finance minister.
David van Rooyen will take over from Pravin Gordhan as minister of co-operative governance and traditional affairs.
Marches to call for Jacob Zuma’s removal as president are being planned for five cities in South Africa on December 16 – a public holiday.
The US Federal Reserve is expected to raise interest rates on the same day in a move that could put economies in countries like South Africa under further pressure.
Former Health Minister Barbara Hogan on December 11 called on Jacob Zuma to resign. The highest-profile ANC member to oppose Nhlanhla Nene’s removal, she said that the president had crossed a line and needed to be held to account.