MyMoney Online

Avoid your own personal downgrade...

South Africa is being reviewed this week by Moody’s rating agency which has a negative outlook on our economy.

The probable downgrade to BAA3 will bring it inline with Standard and Poors and Fitch which have already downgraded us to their equivalent BBB-.

The next notch is categorised as “Non-investment grade speculative” otherwise known as “Junk” status.

Here are some links which explain the details:

http://www.tradingeconomics.com/south-africa/rating

https://en.wikipedia.org/wiki/Bond_credit_rating

What does this mean for South Africa?

Most of our national debt is raised through bonds. These debt instruments offer a fixed rate of interest for a defined period with a commitment to repaying the original capital at the end. South Africa needs to generate enough income through growth to pay it’s debt obligations. Servicing the cost of debt is one issue, however, the country needs to be economically sound to repay the original amount borrowed as well. The rating points to the risks of defaulting on this obligation as growth forecasts are weak placing a strain on being able to cover expenditure.

There are global investment companies which have rules that disallow them to invest in countries with a “Junk” status. So future borrowing will be even tougher for South Africa.

Following what happened to Brazil when it was down graded to “Junk”, the cost of borrowing will increase, the currency will weaken and the Reserve Bank will continue raising interest rates.

What this means for South Africans

The probable weakening of the rand will lead to a rise in inflation as we will pay more for imports, which will lead to a rise in interest rates which will deplete our ability to save.

Research shows that it takes around 7.5 years to for a country to recover from a junk status rating. This poses a gloomy outlook for us, especially as households are already on their knees struggling to make ends meet.

What can we do?

Avoid our own personal downgrade by getting tougher with ourselves.The cost of debt which rise faster as interest rates hike. Forget the illusion of getting through tough times by borrowing. Instead, nail down your exposure to debt and focus on being able to afford your lifestyle .This way you will be able to cope far better if and when the storm arrives. You will also protect your creditworthiness keeping you in good standing should you need a loan in the future.

Listen to the audio below for more information

Read more from Paul Roelofse at www.investforlife.co.za


This article first appeared on 702 : Avoid your own personal downgrade...


Recommended

by NEWSROOM AI
Read More
Millennials – contrary to the stereotype - are very, very good with money

Millennials – contrary to the stereotype - are very, very good with money

Life is really hard for young adults, but they’re more than coping. Old Mutual research suggests older adults can learn from them.

Worried about money? How to have a courageous chat with your spouse about it

Worried about money? How to have a courageous chat with your spouse about it

Life planner Kim Potgieter shares five tips on navigating the complexities around money and relationships.

3 best shares to buy, right now (by Cartesian Capital)

3 best shares to buy, right now (by Cartesian Capital)

Cartesian Capital CEO Anthea Gardner shares her stock picks of the week on The Money Show.

How to keep your wealth from waning during a recession

How to keep your wealth from waning during a recession

The Money Show’s Bruce Whitfield interviews Galileo Capital Personal Financial Advisor Warren Ingram.

3 best shares to buy right now (by Sentio Capital Management)

3 best shares to buy right now (by Sentio Capital Management)

Portfolio Manager Imtiaz Suliman shares his stock picks of the week on Bruce Whitfield’s The Money Show.

JSE up 19% since July. Consider politics when investing? No, it doesn't work

JSE up 19% since July. Consider politics when investing? No, it doesn't work

Investing on the basis of politics, religion and social benefits doesn't work, says Personal Financial Advisor Warren Ingram.

Popular articles
Medical aid premiums are set to increase in 2019

Medical aid premiums are set to increase in 2019

The submissions are currently with the Council for Medical Schemes for consideration.

Assisted suicide activist facing murder charge released on bail

Assisted suicide activist facing murder charge released on bail

Eyewitness News reporter Shamiela Fisher gives a summary of the court proceedings for Sean Davison.

DA adamant that Maimane was never in the running for Western Cape premier

DA adamant that Maimane was never in the running for Western Cape premier

The DA has announced Alan Winde as the Premier of the Western Cape to take over from Helen Zille.

The weed debate continues

The weed debate continues

Callers on the Eusebius McKaiser Show discuss the ConCourt's ruling to decriminalize dagga.

Heinrich Volmink could've been a good mayor but Dan Plato gets the livery collar

Heinrich Volmink could've been a good mayor but Dan Plato gets the livery collar

Prof Jonathan Jansen sings Volmink's praises as Dan Plato is elected to lead the City of Cape Town taking over from De Lille.

'We can barely enforce tobacco legislation, how will we to deal with dagga?'

'We can barely enforce tobacco legislation, how will we to deal with dagga?'

International law enforcement expert and former Drug Unit Commander Lobo das Neves says ruling opens a different can of worms.

Key things to consider ahead of your retirement

Key things to consider ahead of your retirement

If you’re a baby boomer on the brink of retirement, here are a few things to consider ahead of time.