What's in a downgrade? Economist Lesiba Mothata explains

Monday night’s downgrade by credit ratings agency S&P Global has left South Africans with many questions.

Read: South Africa downgraded to junk status

Economist Lesiba Mothata says the decision to downgrade the country should not be dismissed.

He explains that the junk rating will affect the country's ability to do the following:

  • spend on and improve infrastructure
  • pay civil servants for their services
  • create more education

Mothata explains that when the country has to borrow money, foreign investors want to understand the quality of credit that they get involved in, particularly as South Africa stands with a current account deficit.

The trade deficit means that the value of imports of goods, services and investment incomes is greater than the value of exports.

Also read: Moody's playing wait and see game says economist

He advises that South Africa is not in the position to take the junk rating lightly.

It's only when that we you have a surplus on your current account and zero debt that one can begin to say we don't need credit ratings agencies.

Lesiba Mothata, Chief Economist at Investment Solutions

The trajectory of ratings is very concerning... Between now and Friday, Fitch Ratings could come up with a decision.

Lesiba Mothata, Chief Economist at Investment Solutions

Take a listen to Mothata explain the implications:

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