Junk could add 40c to petrol price

Johannesburg – South Africa’s downgrade to junk could see petrol going up by at least 40c a litre next month.

This is according to Neil Roets, CEO of debt counselling firm Debt Rescue, who says the increase will have an immediate impact on the price of virtually all goods and services.

Earlier this month, Fitch downgraded SA to junk, following in the footsteps of S&P’s.

Fitch’s move means that now only Moody’s call is outstanding. Moody’s, which has SA two notches above junk, will make a call on SA’s status in the next three months.

Earlier this month, it put the country on review for a possible downgrade.

Reports indicate that the new Finance Minister Malusi Gigaba is set to go on a roadshow to woo international investors.

Both agencies cited the March Cabinet shuffle, which saw nine ministers including internationally respected then Finance Minister Pravin Gordhan axed. Gordhan was replaced by Gigaba, who was seconded from Home Affairs.

Read also: Fitch follows S&P, downgrades SA

The shuffle – and Gordhan’s recall from an international roadshow a few days before he was axed – caused the rand to drop at least 10 percent before it recovered.

Roets says, with the rand hovering at 13.55 to the US Dollar, petrol is expected to increase by 42 cents a litre and diesel by 39 cents a litre.

The Central Energy Fund has the average petrol under recovery rate at almost 59c, indicating that the hike, which will kick in on the first Wednesday in May, could be higher.

“For Malusi Gigaba and other members of President Zuma’s inner circle who played down the downgrade, the harsh reality of life is beginning to kick in.

“The fuel increase is just the first of the dominos to fall. Growing unemployment and a slowdown in our already abysmal growth rate of 1.2 percent will soon follow as foreign investors seek greener pastures.”

The increase in the fuel price is almost entirely due to the drop in the rand as crude oil prices had actually come down slightly over the past month, says Roets.

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