WATCH: How downgrades affect everyday South Africans

Cape Town - Downgrades of the country’s debt by ratings agencies directly affect the finances of everyday South Africans, according to  Abdulazeez Davids, the head of research at Kagiso Asset Management.

Speaking to Fin24 on Monday, two days after S&P Global downgraded SA's long-term local currency debt to junk status, Davids said it was “unfortunately not true” that credit rating downgrades didn’t impact on the pockets of the average person.

“If you speak to your barber, or the guy who washes cars – they will say this means nothing to them.

"Unfortunately, that’s not true. What a downgrade, especially a Moody’s downgrade, will mean is that there would be an almost immediate increase in borrowing costs, effectively the cost of debt. Interest rates are effectively the cost of debt,” he said. 

While Moody’s did not downgrade SA’s debt on Friday, it did place the country on review to be downgraded after the 2018 budget. 

Davids said that higher borrowing costs feed through an economy. 

“So your mortgage loan, your car loan, your bank loan - all of those will be repriced higher – and unfortunately the rich are rich, because they don’t have debt.”

He added that wealthy South Africans were in fact in the best position to weather a ratings downgrade. 

“They typically have extra savings, their investments are overseas or offshore. With a further downgrade from Moody’s, we’ll probably see the currency weakening – and that will actually be positive for many affluent people.”

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