South Africa gets a rating downgrade

South Africa gets a rating downgrade“OUR sovereignty in South Africa was incredibly hard won, steeped in blood and pain,” said Trevor Manuel, the country’s former finance minister, recalling the debt crisis he had inherited at the end of apartheid in 1994. Faced with a contracting economy, rising public debt and spiralling debt-service costs, the new democracy seemed to be heading towards an IMF bail-out that would have entailed it handing over control of its economy to international creditors. Instead, as Mr Manuel recounted in an interview with the Daily Maverick, a news website, in 2014 on the eve of his retirement from politics, South Africa cut state spending to ensure “we weren’t going to become a client state of anybody.”

Two decades later the country is again moving towards the edge of an economic precipice. Public debt is rising fast, as are the costs of servicing it. The economy has staggered to a near-standstill. On December 4th Fitch, a rating agency, cut its assessment of South Africa’s creditworthiness, saying its debt was now just one notch above “junk”, financial jargon for bonds below a certain rating that have a higher risk of not being repaid. On the same day Standard & Poor’s, another agency, changed its outlook for the country, implying it was likely to downgrade its rating to junk over the next two years.

The agencies’ statements spooked bond and currency markets. South Africa’s long-term bonds slumped and the rand weakened to a record low against the dollar, on concerns that the country’s government bonds may lose their investment-grade rating. If that were to happen large numbers of foreign investors would be forced immediately to sell their holdings because many have rules prohibiting them from owning “junk” bonds. That in turn would drive up South Africa’s borrowing costs and potentially force it again to consider an IMF bail-out.


About The Project

South Africa's conduct of international relations, especially its role in international organisations like the UN Security Council, its choice of strategic partnerships, its leadership role in Africa, its public engagement and foreign policy decision making, has been intensely debated in the recent past. The FPA programme aims to provide a nuanced analysis and facilitate a structured discussion of South Africa's foreign policy in a changing world environment for purposes of informing its future direction.

Aims and Objectives of The Project

The purpose of this focus area is to unpack the extent to which the policy in its making, its nature and its application constitutes a principled and pragmatic response to a complex international environment. In doing so, we hope to be guided by an objective to promote a foreign policy that positions SA as a responsible global citizen committed to building bridges between various power blocs for the benefit of Africa and South Africans.

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