The country, and the rand, went into shock on Monday when South Africa’s sovereign credit rating was downgraded to junk status, following a Cabinet reshuffle and the axing of Finance Minister Pravin Gordhan and his deputy Mcebisi Jonas.
International ratings agency Standard and Poor’s said their decision was directly influenced by Zuma’s shake-up, prompting for calls from opposition parties and civil society groups for him to resign.
The rand dropped to R13.70 — its lowest level since January 16 just after the announcement.
Basically, what S&P’s downgrade means is that South Africa would have difficulty repaying its foreign debt. The government borrows money almost monthly to help pay its bills, and may now find it more difficult to do so.
Most government debt is in rands. Only about 15% is in foreign currency and this debt is now at junk status.
The value of the rand could also continue to drop as people opt to sell rands and buy stronger currencies instead.
But what does junk status mean for ordinary mense?
According to the president of the Cape Chamber of Commerce and Industry, Janine Myburgh, the news is not good.
She says monthly payments on cars, home loans, credit cards and medical schemes will go up.
And if you don’t have a margin of a few hundred rand already built into your monthly budget, these increases will quickly affect your expenditure.
Imports like petrol, clothes, food and medicine will cost more, meaning people will have less to spend on school fees, transport, food and other necessities.
Wikus Olivier, at debt management experts DebtSafe, advised people to immediately stop making more debt, and to start paying off existing debt as soon as possible to avoid getting caught up in the slump.
Economists said it could take anything between five and seven years to get out of junk status.
Credit agencies will need to see that the country has a good economic plan in place and that the government is not going to waste money.