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Rating downgrade could hurt inclusive economic growth, say experts

Striving for inclusive economic growth was a strong theme in both this year's Budget speech and State of the Nation Address.

FILE: A Standard & Poor's document. Picture: AFP

CAPE TOWN - S&P Global’s downgrade of South Africa’s credit rating could have a negative impact on inclusive economic growth.

This is according to some experts commenting on the credit ratings agency’s decision to place the country's foreign denominated debt on sub-investment grade.

S&P Global downgraded the country to sub-investment grade after the Cabinet reshuffle which saw former Finance Minister Pravin Gordhan and his deputy removed from the executive.

Striving for inclusive economic growth was a strong theme in both this year's Budget speech and State of the Nation Address.

University of Cape Town economics professor, Haroon Bhorat, says it will now be tougher for government to achieve inclusive economic growth in the wake of the downgrade.

“Let's say they had R10 to spendbut they are spending R1 on interest for example before the downgrade, with the downgrade they are now spending R2 on interest. Which mean they are not R9 but R8 left for inclusive growth expenditure.”

Economist Mike Schussler says there are a number of possible ways social spending could be affected.

“We are in a situation where the social welfare cheques will not go up by inflation. We will all feel the pinch. Government hospitals are unlikely to buy all the equipment they can.”

Both say it could affect education spending negatively, Bhorat says the possibility of funding free tertiary education have also become a lot harder following S&P’s decision.

WATCH: Gigaba: I knew credit rating downgrade was coming