Junk Status: How the credit rating downgrade affects your pocket

Junk Status: How the credit rating downgrade affects your pocket

Rating agency Standard and Poor's (S&P) has downgraded the country's sovereign credit rating to junk status.

File photo

S&P lowered its long-term foreign currency sovereign credit rating on the Republic of South Africa to 'BB+' from 'BBB-' and the long-term local currency rating to 'BBB-' from 'BBB', citing political instability as the main reason.

The ratings agency said South Africa's pace of economic growth remains a ratings weakness. 

National Treasury has given the assurance that government remains committed to making sure that its work with business, labour and the civil society continues in order to improve the business confidence and implement structural reforms to accelerate inclusive economic growth.

But what does this mean for ordinary South Africans?

Chief economist at Econometrix, Dr Azaar Jammine said we've already seeing the impact of the rand, which traded at R13.72 against the US Dollar this morning.

"The rand has fallen and broken through a critical resistance level which makes it difficult for it to avoid falling quite a lot further over the next few days and weeks," said Jammine.

Jammine said a reduction in interests rates and inflation are, thus, unlikely.

"The more serious implication is that foreign investors will be less inclined to want to invest money in South Africa to build projects and to create jobs in this country and, as a result, I think we are looking at a significantly lower economic growth than we had anticipated," said Jammine.

Jammine said S&P's downgrade is scary.

"They have maintained a negative outlook on our rating, which means they are standing ready to reduce our rating still further. This is more worrisome in terms of managing to attract foreign money and that in turn translates into higher interest rates."

Here is how it will affect your pocket, according to the National Treasury:

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Image: National Treasury
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Image: National Treasury
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Image: National Treasury

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