June 23, 2016

South Africa Escape Rating Downgrade to “junk” Status

In the past few months after former finance minister Nhlanhla Nene was sacked, South Africa has been on the verge of being downgraded to a ‘junk’ status by the rating agency. In simple terms this meant that, if South Africa were a person with an income, debt obligations and a budget to manage repayments of that debt, our salary is going down while our costs of debt are rising.

This means the government is not making as much revenue off taxes because economic activity is low, despite the fact that South African Revenue Services (SARS) for the first time in South Africa history managed to collect over a Trillion rand in the 2015/2016 financial year.

However, on the 3rd June South Africa escaped the ‘junk’ status downgrade. Standard & Poor Global Ratings (S&P) affirmed South Africa’s long and short term foreign and local currency bond ratings at ‘BBB-/A-3’ and ‘BBB+/A-2’ respectively. The foreign currency bond rating remains one notch above sub-investment grade whereas the domestic currency bond rating remains three notches above sub-investment grade.

The benefit of this decision is that South Africa is given more time to demonstrate further concrete implementation of reforms that are underway aimed at achieving higher levels of inclusive growth and place public finances on a sustainable path.

The rating outcome demonstrates that South Africans can unite, especially during difficult times, to achieve a common mission.

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