Hopewell Chin’ono@daddyhope
South Africa has finally received its first Standard & Poor’s (S&P) credit-rating upgrade in almost twenty years.
The last upgrade was in 2005 when Thabo Mbeki was president, before a long period of downgrades triggered by state capture, Eskom failures, collapsing growth, and fiscal indiscipline.
Yesterday’s move from BB- to BB marks the first upward shift since those pre-state capture years, signalling gradual stabilisation, but South Africa still remains below investment grade, with more reforms needed to climb back.
Investment grade is a global finance term to describe countries or companies that are considered safe and stable to lend money to.
Credit rating agencies like S&P, Moody’s, and Fitch grade borrowers on a scale that shows how safe or risky it is to lend them money. At the top of the scale is what is known as investment grade, which signals safety and stability. Investment-grade ratings are AAA, AA, A, and BBB.
When a country is below investment grade, it means big global investors see the country as risky, so the government must borrow money at higher interest rates. When government borrowing becomes expensive, that pressure flows down to citizens.
Taxes rise, interest rates go up, and there is less money for services like healthcare, policing, and education. Investors pull back, slowing job creation. The rand weakens, and prices for goods, fuel, and imports climb, making life more expensive.
South Africa is currently rated at BB, which is two steps below investment grade. To get back into investment grade, it would need to be upgraded to BB+, and then to BBB–, which is the lowest level considered safe for major global investors.
Only Botswana and Mauritius are in the investment-grade category in Africa. It is important to note that while South Africa is still below investment grade, it is headed in the right direction as evidenced by yesterday’s upgrade to BB.
