The inevitable has happened.
Standard and Poor’s ratings agency has downgraded our credit rating to junk status.
This could have been avoided, but in the current environment was unavoidable.
The ratings agencies have been warning us for some time that if certain things were not fixed then a downgrade was inevitable.
Then President Jacob Zuma goes and breaks it.
He has broken the economy and it’s going to take a miracle to fix the already ailing economy. A country with a junk status takes about five years to recover.
The economy has been hanging on a thin thread for some time now.
So what does a downgrade mean for the country? In simple language it means that we are going to pay more for less and the fiscus will have to pay more money for servicing our ever-increasing debt that was at R2.2-trillion at the beginning of the 2017 financial year and forecast to increase to R2.4-trillion due to the deficit for the 2017-18 financial year.
This will result in less money available for service delivery.
We will be paying more for goods and services because interest rates will increase and the rand will depreciate further.
The rand has already depreciated by 11% since former minister of finance Pravin Gordhan was prematurely recalled from an investment-promoting overseas tour.
I’m cautious of stating the figures because by the time you read this letter they will be history.
The aforementioned will result in further job losses that already stand at nearly nine million. The forecast for debt service costs, that is already the fastest rising expenditure item, will have to be adjusted upwards due to the impact of the credit rating downgrade.
A credit rating downgrade has two adverse effects.
First, there will be a huge outflow of capital as investors cannot invest in markets that are risky due to their money no longer being safe and second, the cost of debt increases due to the country being seen as higher risk due to the possibility of it not being able to repay the debt. So interest rates increase. This uninformed government has a “solution” to the crisis. Recently it established its own Brics ratings agency because “other ratings agencies are critical of emerging economies”.
Investors will use a ratings agency that is credible and we will not only borrow money from Brics countries.
The second solution, according to newly-appointed Finance Minister Malusi Gigaba, is to borrow from domestic markets.
The truth is that the uninformed and incompetent finance minister won’t understand that there are insufficient funds in domestic markets to meet the borrowing requirements of the country.
So while we are in a mess, the solution is that as South Africans we must stand together with cool heads and remain orderly to save this beautiful country of ours.