Within a week of firing Pravin Gordhan & Mcbesi Jonas South Africa has been downgraded to junk status by the ratings agency S&P.
Basically what this means in simple words is that the risk of South Africa defaulting on its loans/bonds has increased. The risk of doing business with South Africa has increased. The cost of borrowing for the South African Government will increase due to higher interest rates. More money of the Taxpayers will have to go to paying interest rates which decreases the amount of money available for other things.
The immediate effect of this downgrade has been the depreciation of the South African Rand against all major currencies. Imports will become more expensive. In the long term the downgrade will lead to higher interest rates‚ making it more difficult for South Africans to pay for cars and their home loans.
A slowdown in the economy can also be expected due to lower disposable income. This in effect will have consequences for employment which is likely to decrease.
So a downgrade to junk status will affect all South Africans sooner or later. Now will be a good time to tighten your belt and start reducing your debt.
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