On Friday S&P Global Ratings will update its review of the country’s growth prospects and ability to repay its debt. It may downgrade the local-currency rating after lowering the foreign-currency rating to junk in April following a surprise cabinet reshuffle that included sacking the finance minister.

A Moody’s report is also imminent after the agency said last month that it had placed the government rating on review for a downgrade in 30 to 90 days.

As much as $1.5-billion (about R19-billion) in capital may drain from the bond market as pension funds mandated to invest only in investment-grade funds dump South African bonds, said Ricardo da Camara, investment analyst at Marble Rock Asset Management .

South Africa may be booted off the key Citi World Government Bond Index should either S&P or Moody’s downgrade the local currency to junk.

“I don’t think it’s a 2017 concern but definitely the way it’s been going it’s inevitable in terms of our fiscal situation,” said Da Camara.

Although most fund managers had already reacted to the downgrade in April, some were mandated to hold the sovereign bonds until the day South Africa is kicked off the index, Da Camara said.

Financial markets had already priced in a one-notch downgrade by Moody’s .

But the big risk is a further S&P downgrade – although the ratings agency “will probably wait to get the mid-term budget speech [in October] out of the way”, he said.

“I don’t think they’ll move so soon unless there’s a massive deterioration in the political landscape.”

Most of the government’s debt is denominated in rands but just over a third is held by foreign investors who could sell in a panic.

In the past week S&P, Moody’s and Fitch Ratings have met with the government, business and labour.

“The most important question was where the growth is going to come from because the National Development Plan painted a picture, which government sold to them, to say we’re aiming for a growth rate of 5%,” said Dennis George, general secretary of the Federation of Unions of South Africa.

After keeping interest rates on hold, the Reserve Bank reduced its expectations for the country’s growth to about 1% for the year.

Last year, South Africa recorded growth of 0.3%.

George said the ratings agencies inquired about sectors that would contribute to growth and asked about political uncertainty and the possible outcome of the ANC policy conference that begins at the end of next month.

Recently, the weaknesses of state-owned enterprises and their governance have been highlighted by the surprise rehiring of Brian Molefe as Eskom CEO .

In April, the SABC approached the National Treasury for funding, but was turned away. PetroSA may seek business rescue, and SAA is to get financial assistance.

Colin Coleman, MD of Goldman Sachs South Africa and a member of the CEO Initiative mandated last year by President Jacob Zuma to avert downgrades and initiate growth-stimulating projects, said agencies also questioned tepid business confidence and business assistance to the government to drive structural economic reform.

Another concern was the breakdown in trust between business and the government following the cabinet reshuffle.

“There is significant pressure and risks around structural reform and the growth trajectory. We’re hoping there won’t be a double-notch downgrade from Moody’s,” Coleman said.

S&P said it would revise the outlook to stable if political risks were reduced and economic growth or fiscal outcomes strengthened.

Fitch highlighted the failure to stabilise the government’s debt-to-GDP ratio, which was close to 50%, and the failure of GDP to recover sustainably.

The state is unable to stimulate growth through large enough infra-structure spending, but the Reserve Bank is expected to continue to exercise prudence and not cut rates yet to boost consumption. Governor Lesetja Kganyago said a reduction in interest rates would be possible “should inflation continue to surprise on the downside”.

Despite a deteriorating macroeconomic environment, the rand has rallied in recent weeks and is 5.7% stronger against the dollar for the year. The rand is the 10th-strongest emerging-market currency so far this year of the 24 tracked against the dollar by Bloomberg. It has been helped by a search for yield, which is “likely to continue over the next six to nine months”, said Da Camara.

speckmana@sundaytimes.co.za