Implications of the “Junk” Credit Rating for The South African Economy

Credit rating agencies plays a pivotal role in appraising investment grading as well as probabilities of whether or not institutions are in a position to honour their financial obligations. Recently, South Africa has been under constant scrutiny of rating agencies and was subsequently downgraded to sub-investment grade or ‘junk status’ by one of such agencies. The purpose of this paper is to outline implications of the credit downgrade for the South African government and households. The paper utilised document analysis to answer the research question. It was found that the downgrade is likely to affect the inflation rate, interest rates, management of public finances as well as foreign direct investment negatively. In order to restore the confidence of credit rating agencies in the country, it is recommended that authorities in the country should implement a number of measures including application of sound economic policy, revival of struggling industries, identification sectors such as tourism and export-led manufacturing as well as intensify fiscal consolidation.