Finance minister’s summons hits market

THE summons for Finance Minister Pravin Gordhan to appear in court increases the political risk of doing business in South Africa, analysts warned.

Their reaction follows news that Gordhan has been accused of breaking public finance rules by granting a colleague early retirement.

The move by the NPA against Gordhan sent the rand and share prices reeling and comes 15 days before he is due to deliver his medium-term budget policy statement.

The rand dropped as much as 3.4 percent against the dollar on the latest legal problems for Gordhan, who says he has been the victim of a politically motivated campaign over the past few months.

In line with the weaker rand, South African bank stocks fell by nearly 5 percent to a four-week low.

Government and dollar bonds also fell sharply, while the cost of insuring exposure to South African debt leapt to three-month highs.

A cut to “junk” status in ratings reviews due later this year could push up South Africa's borrowing costs, making it harder to plug the budget deficit.

Tumisho Grater, an economic strategist at Novare, said these developments may increase the probability of a possible downgrade later this year as it adds to the political uncertainty ratings agencies have been flagging.

“There are now also unanswered questions regarding whether Gordhan will be able to deliver the very important medium- term budget policy statement later this month if the issue is not resolved.”

Annabel Bishop, chief economist at Investec, said: “South Africa is at risk of dropping to sub-investment grade on its path to the potentially game-changing 2019 election, with consequent heightened financial market volatility and stagnant economic growth.

"Politics could become noisier and uncertainty rise. This is the growth and employment risk.” – Additional reporting by Reuters