South African Currency Slumped as Finance Minister to Resign Over a Spat With Tax Commisioner
South African Finance Minister Pravin Gordhan has threatened to resign over a spat with the head of tax-collections office Tom Moyane. However, if he indeed leaves, the country's economy would suffer greatly in terms of currency, markets, and investors.
The South African rand has slumped in Friday even at the finance minister's threats to leave his position. According to Bloomberg, the South Africa's currency fell by the most against the dollar as Gordhan's threats to resign was reported in the Business Day newspaper. The finance minister demanded Moyane to be dismissed from the tax office. It was the biggest fall undergone by the rand in four years.
Political Futures Consultancy director Daniel Silke noted that while it's Gordhan's prerogative to resign, he would witness what could be a disastrous market reaction. The finance minister is reported to instill confidence domestically and internationally in the country's fiscal management, so that his resignation could be "catastrophic in terms of investor perception," said Kevin Lings, an economist at Stanlib Asset Management.
Daily Pioneer mentioned finance minister Pravin Gordhan as respectable and competent, while South Africa's President Jacob Zuma is no longer a credible president for most of the country's people. The country's domestic growth last year was around half of one percent, and its currency has been in free fall for the past year before hitting its lowest after the resignation threat from Gordhan.
The quarrel between Gordhan and Moyane began when the minister instructed the tax commissioner to halt a restructuring plan at the South African Revenue Service. "It is unacceptable for the head of a state department to defy the executive, and if there is such defiance, one must ask what is to be gained," Gordhan said regarding the issue.
After the incident, economists urged President Jacob Zuma to show his support for the finance minster, especially after the country's currency weaken after the reported spat. However, Moyane is a Zuma loyalist, as reported by RDM. The president and the finance minister is also caught in a tension as the minister is determined to rein in Dudu Myeni, chairman of SAA and a closer friend of the president.
But the support for President Zuma is considered crucial to save the country's economy from free falling. "We need a really strong signal from the president on whether he is in full support of the minister of finance so we can try to quell any volatility that can take place in financial markets given what we already know and see as a risk," said Lumkile Mondi, economist from Wits University School of Economics and Business Sciences.
Even the threats of resignation posed by South African Finance Minister Pravin Gordhan has caused the country's currency to fall. If the spat between the minister and other authorities were not addressed soon, the markets could react negatively, as with the investors perception.