With Moody’s downgrading South Africa’s economy from Ba1 to Baa3. l felt a slap of the financial market being locked and down. Ok, we already suffering an economic recession and now another strike of Covid-19 which led to a lock down and everything just went haywire.
So, I was talking about Moody’s what does it mean to be downgraded to Baa3. This is referred to as ‘non-investment grade speculative’ or ‘junk status’. This rating signals to potential investors that the risk of South Africa’s debt has increased because the government might not have enough money to pay back what it borrows, basically it means that the country is now considered a high risk.
More expensive debt means more of South Africa’s tax revenue will go to paying interest, leaving less for government to spend on essential goods and services. I can applaud for the government thus far, for reducing the repo rate with a further 100 base point and rumours has it that fuel might go down as well.
Banks or corporate debt may not have a credit rating higher than governments. This means banks will pay more for funding, which could have a knock-on effect on the interest charged on loans.
What impact does this have on our Finances?
The currency weakening
As we have seen from the past two weeks the rand keeps on depreciating against other currencies. This will also have a negative impact on investors who have invested in money markets or stock markets which pegs against foreign currency. They will experience a huge drop in their investments. This is a disheartening moment, but we just have to keep on the faith that after every recession they are always a boom.
Higher borrowing cost
The credit ratings of banks and many corporations are tied to those of government. Most rating agencies have policies in place that limit a corporate issuer’s ability to be rated above its sovereign country debt. Thus, in general, no private borrowers or listed companies would be assigned a rating higher than their country’s sovereign rating. That means the borrowing costs for corporations and banks would also go up, affecting the profitability of firms.
As a result, banks and corporations faced with increased borrowing costs will pass them on to consumers by way of higher interest and bank charges, and they will cut back on lending and investment.
Enough of this, in as much as we think of it, we do not really have any control over what happens to the economies around us. We only have control on the income we get at the end of the day, and it’s entirely up to us what we choose to do with it. Whether you will think of your finances as being in lockdown or they are locked and down. It will be our choice.
What do l mean by finances being in lockdown versus finances locked and down
If you finding yourself having the urge to push on those savings in all the areas which you are not spending money on, due to the lockdown then l can say you are financially disciplined and your finances are in lockdown. For instance, transport costs, lunch, etc.
Whereas, having the urge of spending the money which you could have saved on other areas, through impulse buying on wants. Just because you feel bored and don’t have anything to do with yourselves. Many will end up finding themselves being debt trapped because they aren’t tracking their spending. You lack good money management and don’t be surprised when your finances are locked and down.
I hope we will all make wise money decisions in these times. It is a stressful time for everyone but let’s focus on worrying about what we have control over.
Let us continue practicing good hygiene, self-distancing, and taking care of our money.
Author: Talent T Manyonga