That was pretty quick, right?
Those defending JZ will say that ratings agency Standard and Poor have been somewhat premature, but the uncertainty created by Number One’s latest power play means South Africa has taken the hit anyway.
It’s all fine and well cracking jokes about our dire situation, but it seems that many South Africans don’t know about the real, on the ground effects this downgrade will have on our day to day lives.
TimesLive with a look at some of the negatives:
The main thing a downgrade would bring‚ said Malikane‚ was is an increase in the risk premium‚ meaning lenders increase interest rates because of a perceived greater risk in default. The result is households with capital in investments and assets are going to be mostly affected…
A ratings downgrade will lead to lower access to credit and‚ potentially‚ an interest rate increase‚ which would affect many South Africans because they would be paying more to borrow money. Higher interest rates increase the cost of families paying for loans from banks‚ financing things like home loans and vehicle finance payments…
…the rand could decrease further in value‚ causing a rise in the price of imported goods…
“That is bad news for the whole economy‚ including small business.” [Economist Dr Azar] Jammine said if the rand stayed where it is‚ the impact was not negative. “If the rand goes into free fall and reaches R16 or R17 to the dollar‚ inflation will rise‚ so will food prices and the petrol price will rise. Households will suffer.”
Of course those effects above aren’t at all great, but there’s a Twitter thread from the Mail & Guardian that really hits home in terms of our country’s younger and poorer citizens:
#JunkStatus effectively means a country becomes a defaulting risk because it can’t pay back what it has borrowed.And the interest it has pledged to pay the holders of its debt.
The better a country’s credit-rating the cheaper it can borrow funds in the global capital markets.
The two biggest consequences of a credit junk-grading are political and financial. When gov can’t borrow from capital markets, it has to Borrow from other governments (look East?) or institutions like the IMF. This is the kicker because this leads to a loss in sovereignty.
Typically there are strings attached, mashonisa-style. The structural adjustments imposed by the IMF & World Bank can affect national policy.
Everyone is affected but some more so than others. The poor will bear the brunt of the downgrade as will young people.
So! If SA was a person earning a salary, they’d be spending more than they earn and so they’d start pawning their stuff (JSE) at low prices.
A buyer (investor) would be less interested in pawned goods (little demand) so the pawned goods (the rand) would devalue further.
And thus SA slides further into debt.
Good times, hey?
Let’s hear from Christie Viljoen‚ senior economist at KPMG South Africa:
[He] said uncertainty over the short-term trajectory of local politics would weigh on local and foreign investor sentiment – and hamper the investment needed to address South Africa’s challenges of unemployment‚ poverty and inequality.
You’re welcome to tweet all the memes and have a good chuckle, but every South African will be feeling the effects of this downgrade for years to come.
Haves and have nots alike – we should all be pissed off that the young and economically disenfranchised are hung out to dry, thanks to the greedy paws of those at the top.
A three-day weekend is always welcome, but if you’re not working on Friday it’s worth making a bit of noise where possible.
[source:timeslive]
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