Question

Discuss the public debt management objective of financial credibility. How did South Africa fare in this respect after 1994 and recent times given the downgrading of South Africa’s sovereign debt to junk status by all the three rating agencies?

Answer 1

© The debt management objective broadly is to manage public clebt with the object of providing stable, low cost tunding to meet the financial Obligations and liquiding government. public debt management is the process of establishing and executing strategy for me managing a governments debt in order to raise the required amount of funding achiere its risk and cost needs of the In south africa ccase it was political turmoil, creceit rating with the downgrade the government has to pay more in debt semicing costs, initiatives and infrastructure. In order to plug the objective. Abricas meaning that will instability in the mining sector, s10w economic growth and the devaluating rand that brought to the edge of the precipice. it downgrade south have led to spend in social Hunding gap, government will have to increase revenue through higher taxes. CS Scanned with CamScanner

take certain economic incei cators into account and are But the effects of junk status don't end at borrowing. A downgrade would likely also came the rand to depreciate which would make imports like oil more expensive. This makes everything ene more expensive. when intration rises abore a deignated target range, the south Abrican Reserve Banks puts the repo rate up, colich increases the cost of vehicle loans, mortages, term and other long loans. south africans will auo find it harder to quality for new loans, and when they do secure credit it will be more expensive to surire wigher inhaltion and rocketing interet rate everyone have to make change. credit ratings are measure of ree credit worthiness of a country's goremment meaning that they show how likey the goremmaut istopy back borrowed money. Three mait rary agencie - standard and poors, moody's and Riteh.do not measure the health of the local economy, rather they aicio tee gorem ment ability to honor debt commitments. There measurement as indications of a countrys economic tremseires seen poospeets. CS Scanned with CamScanner