Sat Oct 22 18:17:58 CAT 2016

The rating outlook in a nutshell

By unknown | Nov 13, 2008 | COMMENTS [ 0 ]

Lihle Z Mtshali

Lihle Z Mtshali

Global rating agencies Fitch Ratings and Standard & Poor's this week downgraded South Africa's outlook from stable to negative.

On Tuesday, Fitch took the offensive even further by downgrading the rating of three of South Africa's banks that it covers.

Investment Solutions economist Chris Hart explains what impact the downgrades will have on SA.

What is a sovereign rating and why is it important for a country?

A sovereign rating measures how risky a country is in relation to other countries. It affects the commercial and economic relationships between countries.

What are the implications of this outlook cut for our economy?

South Africa needs to access capital on the international markets to sustain its capital expenditure programme.

With a downgrade, what that means is the cost of accessing finance goes up and the difficulty of accessing finance also goes up.

What does this all mean for the ordinary man?

In the short-term it won't affect people in their day-to- day lives. Where it can affect people is if you have a weaker currency and if we can't access finance. If that currency weakens to a point where we have to raise interest rates, it will hit the average household quite hard.

Especially in the current economic circumstances, it could also mean that if SA no longer receives investment inflows, the economy may be forced to slow down to close the trade gap and that means pressure on the average household again, rather than any other sector.

So it becomes quite relevant if it involves the rand or interest rates.


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