South Africa has been put on review for a downgrade to junk status. What does this mean and more importantly, how will it affect you?

South Africa is in danger of more economic hardship if the country is downgraded to “Junk Status”, which makes a country unattractive to investors and can hike local interest rates.

International ratings agency, Moody’s, is currently evaluating whether South Africa should be downgraded from Baa2, the rung just above Junk Status. Their investigations are into SA’s ability to pay back its debt as well as the interest that the country is charged to borrow money.

All this follows on SA’s slowing economy and rising debt. The recent political uncertainty and controversies around President Jacob Zuma has added to foreign investor concerns.

Many economists have said that a downgrade would be detrimental to the South African economy. If investors won’t invest in SA then the rand will weaken and the rate of inflation will shoot up. This would mean that interest rates and the cost of goods  would once again increase.

It would also affect the country’s ability to invest in areas of development such as tertiary education. Jannie Rossouw, head of the Economics and Business sciences department at Wits said, “Students studying with debt will feel the effects of higher interest rates. The exchange rate will also go up and imported textbooks will become a lot more expensive.”

Jason Daniels, a 21-year-old design student said, “It will have a really bad effect on students as it might affect some of the resources that universities desperately need.”

A downgrade to junk status would make it even more difficult for students who are already facing financial difficulties.