Small business representative organisation AHI says ratings agency Fitch’s decision to downgrade South Africa’s credit rating to junk status will lead to lower economic growth, with some expecting billions of rands in outflows and a doubling of the current account deficit for South Africa.
In addition, it will put more pressure on the rand, significantly raise inflation and increase the difficulty in servicing government debt.
“It will take us years to recover,” AHI presi- dent Bernard Swanepoel said in a statement earlier this month.
Fitch’s downgrade to BB+ from BBB– on both foreign and local currency debt follows that of S&P’s, which also cut South African foreign debt to junk status earlier this month.
The agencies’ moves follow the dismissal of former Finance Minister Pravin Gordhan and his deputy, Mcebisi Jonas.
With two out of three rating agencies having downgraded South Africa to junk status, Swanepoel noted that the country was likely to drop off a number of global bond indices.
He pointed out that this would force international funds that track such indices to sell.
“Funds and other institutional investors prohibited from holding subinvestment-grade securities are also likely to join the exodus out of South African bonds,” he said.
Swanepoel highlighted that AHI was warning its members that a weaker rand and other factors resulting from the downgrade were almost certain to lead to a rise in the cost of servicing government debt.
This would mean less money for critical services such as health, education, housing and sanitation, hitting the poorest and most vulnerable the hardest.
He added that fewer infrastructure projects would mean that procurement from small, medium-sized and microenterprises would decline.