Removal of Nene proved to be costly

Date: 20 Feb 2019

Investors and markets were sceptical of Zuma’s motives for removing minister Nene from his post Catherine MacLeod National Treasury economist

THE controversial removal of former finance minister Nhlanhla Nene had caused lasting damage to South Africa’s borrowing, resulting in increases of billions of rand in paying back debt.

This is according to National Treasury economist Catherine MacLeod, who testified before the Zondo Commission of Inquiry into State Capture, where she outlined the long-term impact of what has come to be known as the “Nenegate” on government’s debt.

MacLeod, who is the chief director for macro-economic policy, said the 2015 replacement of Nene with Des van Rooyen by former president Jacob Zuma did not only see the rand plummet, but also harmed revenue, forcing the government to depend on borrowing to adequately fund social spending.

“When we increase risk perceptions of SA, it has real effects on the fiscus, which also means that it is money we are not spending on social priorities. We end up paying debt service costs.”

MacLeod said the country’s actual debt service costs rose about R5 billion between the 2015 Medium-Term Budget Policy Statement and the February 2016 main budget, which followed Nene’s axing.

“This means that debt service costs in 2016/17 were 11.4% of our total spending in the 2015 MTBPS. They were meant to be 10.5%,” Macleod said.

MacLeod said the government had not been able to run on budget surplus since then, which she said also triggered the sharp fall of government bonds.

“One of South Africa’s most heavily traded bonds, the R186, saw its yield rise from 8.82% on December 9 to 9.87% on December 10. That is a full percentage point higher. With bonds, when the yield goes up, it means the price goes down. This means that investors view our bonds as more risky. On December 11, two days after, the yield on the R186 was 10.38%,” she said.

Van Rooyen was subsequently replaced in the finance ministry by current Public Enterprises Minister Pravin Gordhan, in an effort to allay negative market reaction.

Commission chairperson Deputy Chief Justice Raymond Zondo asked why investors would be concerned with the change of cabinet ministers if the president, government and the governing party remained the same.

MacLeod said investors and markets were sceptical of Zuma’s motives for removing Nene, whom they held in high esteem after he blocked controversial transactions from going ahead.

  Catherine MacLeod

“Investors were concerned that the change in ministers would weaken National Treasury’s ability to fight those policies within Cabinet,” she said.

By Siviwe Feketha –

For more info see: