Why credit ratings matter and why they can't be ignored To summarise it in a single sentence: CREDIT RATING = INVESTMENT = GROWING ECONOMY / JOBS The credit rating opinions are used by various stakeholders and for different reasons: 1 - investors use credit ratings as a guide to their investment decisions. Credit ratings provide an independent and objective assessment of the credit worthiness of countries and corporations. This assists investors to decide how risky it is to invest money in a certain country or corporation. 2 - For corporations and governments who want to raise money in the capital market, a favourable rating means a country will be able to obtain funds at a lower cost. 3 - Governments could also use credit ratings as a measure for gauging their performance relative to peers to effect improvements. Junk status is associated with high risk. Therefore, high borrowing costs. This is the main reason why a sovereign has to avoid being downgraded into a junk, or sub-investment grade. For an ordinary person it means paying more interest, leaving little money for savings and expenditure on rent, school fees and food. South Africa therefore can’t ignore the credit ratings assigned to it, especially given that foreign investors hold more than 30% of government debt. It is pretty clear that if we want our debt costs to remain lower, investment to happen, the economy and job creation to grow, SA needs to avoid junk status. Junk status will mean higher costs for debt, higher interest rates, higher taxes. See http://ift.tt/2g2UCfm
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