When you or I ask a bank for money, the bank goes to a credit bureau and asks them how we conduct our finances.
The bank will then assess:
- Our income earned each month
- The value of debt we owe
- How we manage our debt (whether it is paid on time or whether debit orders bounce due to insufficient funds)
Following the assessment, the bank will then allocate a score to the client. This score will determine whether the client is eligible for a loan, and then they’ll determine the applicable interest rate.
The same process applies when a country applies for credit. The most popular credit rating companies for government credit applications are:
The amount of debt that the South African government owes its international credit investors is a cause for concern. Between the years of 2008 and 2016, South Africa had doubled its debt, and at present, it costs our country a frightening fee of R150 billion to pay the interest on our debt alone. At this time, our Government Debt; expressed as a percentage of gross National Product; equates to 50.1%. Our neighbouring country Malawi owes 18% of their GDP.
To put this into context, if South Africa were to start paying back half of our debt, we would be able to give every university student in South Africa free education, just from the savings in interest payments.
While we have a temporary reprieve until December 2016, I am convinced that our cabinet has no idea of what we face if they don’t stop spending what we do not have. A further downgrade will not only lead to an increase in the unemployment rate and a hike in interest rates, but it will damage our economy further.
We have to show our Government that restraint is needed. We say to you, stop spending money on huge projects that we can no longer afford, and stop closing your eyes to corruption.