JOHANNESBURG – Rumours of Finance Minister Pravin Gordhan’s impending arrest on Monday sent the rand towards its weakest level against the dollar in two months.
Economists have warned that if the Finance Minister were to be outsted, it would send inflation soaring.
Bloomberg reported that the currency declined and was the worst performers among 31 major and developed-nation currencies on Monday.
This followed unverified reports that Gordhan would be apprehended over alleged irregularities during his tenure at the South African Revenue Service (SARS).
Azar Jammine, chief economist at Econometrix, told eNCA any move to prosecute or remove Gordhan would be bad for the Treasury.
“If Pravin Gordhan were now to be ousted, the currency would give way in a big way, because people would say the Treasury is not being allowed to carry out its mandate of fiscal consolidation, therefore we would end up with populist policies
“If he were forced to resign, we would be back at R18-R20 against the dollar in no time, inflation would hit 9 percent and growth would be negative.”
Gordhan has done well to stabilise the economy, securing a small victory last week, when ratings agency Moody’s affirmed the country’s investment grade.
But the timing of the news of his alleged impending arrest now threaten that.
This week, the Treasury is meeting representatives from two other ratings agencies, Fitch as well as Standard and Poor’s, which are to report on the country’s grading status next month.
So the cloak-and-dagger games around the country’s purse manager do not bode well for the economy.
“It does increase the political risk,’ said Jammine. “But I think the ratings agencies will give us the benefit of the doubt, because nothing has happened so far. But it must be clear to them that there are underlying factors that are trying to shake the Treasury’s policy consolidation stance.”
The finance minister has already stated that he operated legally during his tenure as Sars commissioner, while the Presidency, the Hawks and the NPA have all denied reports of Gordhan’s arrest.