South Africa finance minister summoned to court, sends rand falling

The South African rand tumbled in the wake of the country’s finance minister Pravin Gordhan being summoned to court to charge him with alleged fraud over the granting of early retirement to a colleague.

When the news of the summons was released by chief prosecutor Shaun Abrahams on Tuesday, the rand fell by 3.4% against the dollar and government bond yields jumped.

The charges relate to Gordhan, when he was previously head of the South African Revenue Service (SARS) a decade ago, granting an early pension payment for Ivan Pillay, SARS deputy commissioner, who he then re-appointed as a consultant.

Reuters reported that this cost the tax agency around 1.1m rand or $79,000, which violated public finance laws.

A special police unit, the Hawks, had also been investigating Gordhan over the investigative unit of SARS.

The Hawks had come to Gordhan’s home to hand the summons to appear before court on 2 November.

Gordhan previously received a summons to appear before the Hawks in August and have his rights read to him regarding the ongoing SARS investigation, but he was not charged.

He was re-appointed finance minister in December 2015 and was due to give a mid-term budget later in October.

Africa’s most industrialised country is the midst of stagnant growth, widespread poverty and rising unemployment while facing risks of rating downgrades in the final quarter of the year.

"Chances are high that political risk will remain an issue as the medium-term budget-policy statement looms (26 October). After a 3% rally, USD-ZAR could quickly move (by a further 2%) towards 14.55 in the days ahead.

"If markets begin to believe that recent developments could result in a downgrade of South African government debt to sub-investment grade, USD-ZAR could possibly move as high as 15.20, or more than 6.0% above current levels," UniCredit Research's Kiran Kowshik said in a research note sent to clients.

At 1222 BST the rand was down 3.26% to 0.070051 against the dollar.