SOUTH AFRICA IN THE BRINK OF JUNK STATUS
Written by: Xolisani Khumalo
President Jacob Zuma answered questions on Tuesday in his quarterly appearance in the National Council of Provinces. Among the six questions asked was one on the imminent threat of the country’s economy being rated down to junk status.
According to Gina Schoeman, a global economists, a downgrade to junk status would mean a hike in interest rate when the government borrows money from international banks and bad credit rating which essentially translates to public services being strained because there isn’t enough money to run them, as investors would have pulled out.
Zuma opened his statement by explaining what credit rating agencies are and re-assured the nation that these agencies do not really impact on agreements between countries.
“We take the agencies and their work very seriously while ratings agencies are an important feature on world economies they don’t necessarily impact on agreements between countries,” said the president.
Zuma mentioned the importance of rating agencies and later denounced their importance and impact on relations between countries to which, ANC North West MP, Gerard Nthebe asked:
“While we appreciate and wait with great anticipation the establishment of the Brazil, Russia, India, China and South Africa (BRICS) rating agency, please explain the rationale behind such a noble idea, and what is, if any the benefit of the developing countries and BRICS members states in terms of the rating agencies that might come in the near future?” asked Nthebe.
The president then explained how BRICS members felt the manner in which rating agencies operated was not balanced as they do not operate from the understandings and the philosophy of the developing countries’ economy.
“You will appreciate that the concentration of rating doesn’t seem to be well balanced according to the view of BRICS. Example the entire Europe has been in difficulties for a long time and there are no rating agencies that visits those countries from time to time to rate them but if the developing countries have difficulties they come rate and make public statements continuously,” said Zuma.
With South Africa getting rated by a Standard and Poor rating agency on the 2nd of December, it seems like the president unlike many economists, is not really worried.
“Leaving aside the fact that the views of the economists in the world are not exactly the same – BRICS thinks we need a rating agency that will be moving from an understanding and philosophy of these countries as to how the economy should be. That’s precisely why they have taken the decision of rating themselves,” he further added.
Although some questions pertaining the rating of the country were not answered, Chairperson of the NCOP, Thandi Modise expressed more than once that the president was not obliged to answer all question and that he was within his right to not answer.
*Photo by: Menelisi Ndwandwe