Ratings agency, Fitch, downgraded South Africa’s sovereign credit rating to junk status yesterday. South Africa’s downgrade will have a harrowing impact on students looking to enter the ‘grown-up world’ within the next few years.
Fitch is the second major ratings agency to downgrade South Africa to junk status. S&P downgraded South Africa Monday, 3 April. Political uncertainty was cited as the main reason for the downgrade after President Jacob Zuma’s midnight cabinet reshuffle on 31 March.
“Unfortunately this downgrade means higher day-to-day living costs for South African citizens,” said Dr Nicola de Jager, a senior lecturer in Political Science from the University of Stellenbosch.
De Jager added that this increase of daily living costs will be due to the increase of taxes and inflation.
“Investors will be less likely to invest in the country which in turn means that there will be less job opportunities,” said de Jager. Fewer job opportunities pose a challenge for young people who will be looking for jobs in the next few years.
Salaries are unlikely to increase. This means that higher daily living costs will leave consumers with less money to pay for goods that cost more.
Dr Dieter von Fintel, a senior lecturer in Economics from the University of Stellenbosch, said that young adults looking to buy cars or houses on loan will pay much higher interest rates over the next few years. As a result, it will take much longer to pay off the debt than it did before.
Von Fintel referred to 1986 when South Africa was downgraded to junk status and said that during this time many people lost their houses because they could not pay the high interest rates.
The last of the three major ratings agencies, Moody’s, is yet to decide on South Africa’s fate. – Marli van Eeden
Standard & Poor’s headquarters in New York, USA. PHOTO: Facebook