The South African economy is in a poor state, the country’s current junk status reflects this on the credit rating scale. The country’s economy has been in a recession for three years, with GDP shrinking by 1.3% in 2018. The government has also been struggling to keep up with its debt repayments and because of this, they have had to take out loans from other countries like China and the IMF. The rating agencies have been downgrading South Africa’s credit rating over the last few months because of issues such as high unemployment rates, slow economic growth and rising inequality.
What if South Africa is downgraded to ‘junk status?
South Africa is currently rated at the lowest investment grade, BBB- by the rating agency Moody’s. If it gets downgraded to junk status, it will have a negative impact on the country’s economy. South Africa has been struggling with a high unemployment rate and low economic growth for years now. The downgrade will cause higher borrowing costs for the government and companies in South Africa which will make it difficult for them to repay their loans. The downgrade would also result in a weaker rand which would lead to higher inflation and higher interest rates which would make it harder for people to afford necessities like food and shelter.
