South Africa is in danger of losing its status on the international capital markets, the South African Central Bank warned. Credit rater Moody’s already downgraded South Africa’s rating in March. S&P will probably follow that example in June. This will give South Africa a junk status making it unappealing to invest in. This will have consequences for the country.
A lower status can result in a flight of capital, which will have consequences for the national debt. The costs of financing the debts will rise. For companies it will also result in lower credits. The reason for the economic difficulties the country is in, lies in several factors. Prices for raw materials fell globally, the Chinese economy is shrinking and the country is plagued by drought.
Furthermore, there has been very little political stability in recent years. President Zuma is under fire, among other things on suspicion for corruption, but government spending has also been going too far. Bureaucracy has grown so much, that 40 per cent of the government budget is spent on the salaries of civil servants. Ministers and state secretaries are living in the lap of luxury and government enterprises have received loans worth 14 billion dollar, despite the fact that many of these companies will probably never pay back the loan.
The economic loss started some time ago. In 2014 foreign investments had already decreased by 29 per cent to 5.8 billion dollars. Large companies such as Barclays Bank and Anglo America divest parts of South Africa. The IMF, however, estimates an economic growth of 0.7 per cent. Some analysts predict a recession for the country. According to the South African Central Bank the institution has sufficient reserves to absorb the blows.