Why are ratings by credit agencies important to ordinary SA consumers?

by | Dec 7, 2020 | Personal Finance

The world’s most important credit ratings agencies have said that SA will be unable to afford its debt; and it is unlikely that the government will be able to avoid the crisis by implementing its elaborate plans to revive the economy — including cutting spending and carrying out vital economic reforms — mainly due to a lack of political will.

The credit ratings of SA banks will be downgraded after the decision by three investor services agencies to downgrade the country’s credit risk rating.

Sometimes statements like these are not taken seriously by ordinary SA consumers – as we think it doesn’t affect us. We couldn’t be more wrong.

Credit rating downgrades for the banks increases the cost of credit – and that definitely affects us all. Most South Africans cannot afford to save and the country cannot finance its own development needs.

South Africa then borrows from domestic and international markets for the funds needed by the government for services and investment.

The higher the risk that loans may not be repaid ( as is the case with SA) the more interest is charged. This is why credit ratings are important. Government borrowing costs — the interest rate at which the state is able to raise funds — is an important reference point for interest rates across the economy, from personal and home loans to investment financing facilities for corporates and other businesses.

If businesses fail, people lose jobs. If people lose their jobs their families suffer.

The money the government and state-owned enterprises (SOEs) have borrowed from banks and other SA financial institutions must be paid back. Ratings agency decisions are based primarily on their assessment of whether a country will be able to afford to service its debt. SA’s numbers simply do not add up.

South Africa simply cannot afford a financial crisis on top of the current health, economic and social crises. Yet sadly, ordinary consumers are not in control of what government does.

We can only inform and equip ourselves as best possible to see to our household debt and overall finances.

Like government, many ordinary consumers are also struggling with their personal debt. Unlike government, we have more options available to us and the outlook does not look as bleak.

Debt review could undoubtedly be an option if you have skipped some payments and/or getting calls from creditors and debt collectors. NDA, South Africa’s number one debt counselling company will be available throughout the December holidays to assist you if you have any questions.

Fill in the contact form and one of our debt consultants will contact you.

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