by Ndumiso Mlilo
JOHANNESBURG, May 19 (Xinhua) — South Africa was downgraded to sub-investment grade and it would affect the Southern African region, said experts on Friday in Johannesburg.
The experts were discussing the effects of possible downgrade in the region in Johannesburg on Friday. South Africa’s credit rating on its debt was downgraded to junk status by some international rating agencies this year.
Jessica Rees-Jones, executive director of Inyathelo, a South African civil society, said the downgrade would affect the service delivery in the country, and there will be political, socioeconomic impact to the country. About 10 billion U.S. dollars will leave the country as investors would look at less riskier countries to put their money.
Jones, who is a also a consultant, said the cost of public debt is around 11 percent currently and would be more. She said, “There won’t be any money for social services like education, water, housing and health would be compromised. There are over 16 million people who survive on government grants, they will receive less than they are getting now.”
Jones said experience have shown that it takes about 5-7 years to recover when downgraded. The civil society have a role to partner government and business to rescue the country. She noted that there will be still appetite in some international funders to help the civil society even if the country is downgraded.
“This is an opportunity to stand up with a collective voice by different role players and take ownership and see how to map the way forward. The civil society have to stop the us and them attitude. We have to see what to do and how to do it and the better what to do it junk status or not,” said Jones.
She said there will be reduction in the Foreign Direct Investment (FDI) as few would invest in this country. There is also a need for a resilient individual and institutions during this challenging period.
Thanti Mthanti, senior lecturer in finance at Witwatersrand Business School said the bulk of the government debt (90 percent) is in rands and has not been downgraded. If the local currency debt rating is downgraded then there would be concerns.
He said the government could use part of the pension money from the public service pension fund to boost the market. The youthful country who are many could mean that they would still contribute enough money for pensioners as pay as you earn.
“We could still get investors who are not sensitive to the ratings. Despite the downgrade in foreign debt finance is still flowing into the bond market. The government should be able to meet its fiscal requirement even if there is a downgrade,” said Mthanti.
Mthanti said the country’s membership to BRICS could also assist, saying “We has swap lines with the Bank of China. We also have balance of support arrangement (Contingent Reserve Arrangement). South Africa will approach BRICS if in trouble before running to IMF. The country would get 17-20 percents of imports which would help a bit.”
The downgrade could affect the South African companies, who will reduce their investment in the continent. South African companies are investing in many parts of the continent including telecommunications service provision, retail, mining and property, said Mthanti.
Deprose Muchena, regional director for Southern Africa at Amnesty International said while many countries have been downgraded before and recovered, South Africa is unique and how it responds to it would count.
“South Africa could be pressured by the IMF to remove subsides. The scrapping or reduction of grants could create tension. Downgrade could create problems with water, electricity housing ad the failure to access these could create problems for the government. Southern African countries would be greatly affected as their economies are linked to South Africa. Lesotho and Swaziland Finance Ministers do not present their budgets until South Africa has done so,” said Muchena.