In plain English: How the downgrade to junk status affects you

Before the downgrade to junk status was announced, economists warned that South Africa was perilously close to a sovereign ratings downgrade as a result of high political risk and lack of sound economic policies.

The general opinion is that there is very little that the new Finance Minister Malusi Gigaba can do to appease investors as he is seen as a Gupta puppet.

 

What you can expect:

  • Higher interest rates‚ making it harder to pay for cars and home loans and affecting property values.
  • Lower access to credit and an interest rate increase which means that you will be paying more to borrow money.
  • The rand could decrease further in value‚ causing a rise in the price of imported goods.
  • If the rand reaches R16 or R17 to the dollar‚ inflation will rise‚ and with it food prices and the petrol price.
  • Uncertainty about where local politics is heading will have a negative effect on the investment needed to address South Africa’s challenges of unemployment‚ poverty and inequality.
  • Taxes will increase significantly.
  • International investors will pull their money out of the country. The immediate effect is a drop in the value of equities and bonds, while the rand depreciates. This means that the value of all your savings, investments and your pension fund will go down.
  • No new foreign investment in South Africa. This means no new factories, no new businesses, no new initiatives and no new jobs.
  • The skills and brain drain will continue. The best and the brightest talent will leave the country to pursue their goals elsewhere.

Other credit ratings

In November 2016, Fitch Ratings downgraded its outlook for South Africa’s sovereign credit rating to negative from stable and affirmed the country’s long-term foreign credit rating at ‘BBB-‘, saying political risks had increased and will remain high at least until the electoral conference of the African National Congress (ANC) in December 2017.

Moody’s credit rating for South Africa was last set at Baa2 with a negative outlook.

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