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by Institute for Global Dialogue

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Categories: Uncategorised

by Institute for Global Dialogue

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South Africa gets a rating downgrade

Two decades later the country is again moving towards the edge of an economic precipice. Public debt is rising fast, as are the costs of servicing it. The economy has staggered to a near-standstill. On December 4th Fitch, a rating agency, cut its assessment of South Africa’s creditworthiness, saying its debt was now just one notch above “junk”, financial jargon for bonds below a certain rating that have a higher risk of not being repaid. On the same day Standard & Poor’s, another agency, changed its outlook for the country, implying it was likely to downgrade its rating to junk over the next two years.

The agencies’ statements spooked bond and currency markets. South Africa’s long-term bonds slumped and the rand weakened to a record low against the dollar, on concerns that the country’s government bonds may lose their investment-grade rating. If that were to happen large numbers of foreign investors would be forced immediately to sell their holdings because many have rules prohibiting them from owning “junk” bonds. That in turn would drive up South Africa’s borrowing costs and potentially force it again to consider an IMF bail-out.

Available: http://www.economist.com/news/middle-east-and-africa/21679693-mismanagement-and-magical-thinking-are-driving-rainbow-nation-debt 

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