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Alternative Market Briefing

The Big Picture: South Africa on a roller coaster ride

Monday, December 14, 2015

amb
Ian Hamilton
Benedicte Gravrand, Opalesque Geneva:

Earlier this month, ratings agency Fitch downgraded South Africa’s debt to one level above "junk", citing concerns about the country’s slow growth (1% this year) and increasing public debt. Standards & Poor’s, another ratings agency, implied it might go all the way. President Zuma then fired his finance minister, Nhlanhla Nene, on 9th December. The rand feel sharply against the dollar.

According to The Economist, Mr. Nene had earned the trust of investors (and the irritation of other ministers) by consistently trying to hold the government to its pledge to limit increases in state spending. David van Rooyen, an unknown backbencher, will be his replacement.

South Africa’s debt has gone up to 45% of GDP, from 26% when Zuma became president in 2009. And due to the debt’s poor credit rating, the interest rate is high, at 8.6%. If government bonds get a junk rating, this might cause a sell-off as fund managers are barred from holding junk bonds – they can only hold investment grade bonds. A sell-off might lead to an increase in borrowing costs, and South Africa looking for an IMF rescue.

ASISA, the Association for Savings and Investment SA, voiced its concern: "The unexpected removal of Nhlanhla Nene from the position of Finance Minister is of gra......................

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