South African jobs will be lost as a direct result of Friday night’s downgrade of SA’s long-term local currency debt to junk status by S&P Global Ratings, according to Lesiba Mothata, chief economist at Alexander Forbes Investments.
Mothata, after the downgrade took place, said it would contribute to a knock-on effect resulting in higher borrowing costs, increased interest rates and tighter lending from banks.
“The entire structure of costs when you have borrowed money in the economy goes up – which means it will be harder for the economy to grow further. Which actually means that people will lose their jobs,” he said.
“And once you lose your job, you are not able to finance that debt. It could create the problem, where people don’t really have money to pay off their debt while they have lost their jobs, and that could then create a problem in the banking sector, through higher defaults.”
SA’s unemployment rate currently stands at 27.7% .
Late on Friday evening S&P downgraded South Africa’s long-term local currency rating to ‘BB+’ – or junk – with a stable outlook, while rival ratings agency Moody’s placed the country on review to be downgraded.
On Thursday, meanwhile, the third major ratings agency Fitch affirmed SA’s long-term foreign and local currency debt ratings at junk with a stable outlook.
This means that, of the three major ratings agencies, only Moody’s has kept SA’s sovereign debt at investment grade.
Moody’s said it would reassess SA’s debt after the ANC elective conference in December, and the main budget in February next year.