SA may be downgraded to junk status due to political risk and low growth
Although SA avoided a downgrade to non-investment grade, or junk status, in 2016, the country is not yet out of the woods and may be downgraded this year. The reasons for this are ongoing political risk as factional battles in the ANC intensify, policy inconsistencies and low economic growth. The effects of a sovereign credit rating downgrade would be significant for all South Africans. It would drive up borrowing costs, which in turn would have a negative effect on the government’s finances. It could also lead to foreigners leaving SA’s capital markets, as well as making the rand weaker — and it would, in turn, push interest rates up, which would hurt everyone. There are, however, some steps the country can still take to avert a downgrade. These include underscoring that Finance Minister Pravin Gordhan is secure in his job, and cutting wasteful expenditure. Impact on the markets SA’s public debt stands at 50.1% of the country’s GDP, nearly double what it was in 2006. If the governm...
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