How far down will SA go after starting on the slippery slope?
Brazil and Argentina illustrate that a lot of pain has to be endured to turn around an economy
As the dust settles after Minister of Finance Malusi Gigaba delivered the medium-term budget policy statement, South Africans are looking around to fathom where it leaves them. Initial reactions in the sensitive rand and local fixed-income markets were ominous. The rand sold off 6.5%, the 10-year bond yield jumped from 8.85% to 9.42% and short-term interest rate futures moved from discounting a declining rate cycle to a hike within months. A widespread reaction was that S&P Global Ratings would have no choice but to downgrade SA’s sovereign debt rating on November 24, with Moody’s and Fitch sure to follow in 2018. The ratings downgrade bandwagon was about to move up another notch, as has been seen in other emerging markets. However, there were some caveats. Some said that the ANC’s elective conference in December was such a critical event, with potentially binary outcomes, that the rating agencies might wait. A more charitable assessment of Gigaba’s presentation was that it was cand...
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