Fourteen years ago, as the world was learning to live with the immediate aftermath of the global financial crisis, S&P issued its rating actions on Greece and South Africa.

South Africa’s June 2009 rating of BBB+ reflected the soundness of “the country’s macroeconomic policies” as well as its “moderate debt burden and stable political institutions”.

The resilience of the banking system in particular – which had avoided the worst of the fallout of the 2008 financial crisis thanks to the conservative stance of the South African Reserve Bank – enabled South Africa to retain this investment grade in spite of the global economic climate.

The stability of political institutions was expected to be maintained as the country had just completed a general election where the ANC had once again emerged victorious.

Six months later, S&P rated Greece at BBB+ in light of increasing concerns about the country’s ability to stabilise its debt.

In the words of Fitch – which downgraded Greece to BBB+ at the same time – the downgrade was influenced by “the weak credibility of fiscal institutions and the policy framework”, with the situation “exacerbated by uncertainty over the prospects for a balanced and sustained economic recovery”.

Greece’s deterioration, and return

Over the next two years, the predictions became reality as Greece’s finances and politics deteriorated.

By February 2012, the country had to make the tough of call whether to stay in the Eurozone or exit. Staying came with consequences. Greece would have to significantly cut public spending to stabilise its debt.

The alternative – leaving the common currency union and going it alone – would have unquantifiable implications for Greece as it would have to restart its economy with a new currency and lose the political credibility of the Eurozone.

Greece descended into a technical default and only avoided bankruptcy through a combination of hard-to-swallow bailouts and austerity measures that were even harder to swallow.

Over the past decade, as political upheavals and geopolitics ebbed and flowed, Greece quietly found a formula to scale its way back up the credit ratings. (See its 2022 rating report here).

This process has not been without consequence and controversy.

According to the Financial Times, Greece’s economy is smaller today than it was in 2008 and wages are effectively lower today than they were in 2007.

This week, S&P announced that it had changed its outlook for the Greek economy to positive, and put the country one rating action away from a return to investment grade.

The turnaround from junk grade to investment grade has taken more than 10 years and reflects the rather slow pace of scaling up the ratings once a country’s economic fundamentals have been undermined.

South Africa’s deterioration …

Greece’s developments are in sharp contrast to those of South Africa, which has steadily fallen down the ratings.

The positive elements cited about SA in 2009 have gradually been decimated by a combination of political missteps and poor management of the economy internally, and reactions to exogenous global developments.

The current profile of the economy – stagnant and defined by increasing unemployment, deepening poverty and persistent load shedding – makes it a shadow of the promise it held back then.

Its instruments of direct intervention have proved to be powerless against the confluence of multiple factors. The monetary response to the current inflation and cost-of-living crisis has been to increase interest rates to retain some value in the currency.

In the absence of complementary fiscal policy interventions, the focus on interest rates has only worsened the daily experience of South African citizens dealing with the twin blows of stagnating salaries and escalating living costs. The fragility of the country’s economy was once again in focus last week.

The diplomatic chaos relating to the question of South Africa’s position on the Russia-Ukraine conflict led to a collapse of the rand.

As confusion reigned over the future of political and economic relations between South Africa and the US, the rand found itself experiencing the most acute fallout due to anxieties about the possible economic consequences.

The possible response from the US, ranging from direct actions such as exclusion from the African Growth Opportunity Act (Agoa) to the more nebulous imposition of sanctions, are impossible to scientifically quantify – but definitely won’t improve the South African economy.

That big disadvantage, and the long-term costs

When paired against the country’s now-perpetual residency in sub-investment grade status and its recent greylisting by the Financial Action Task Force, South Africa’s collective economic fundamentals are as dire as they can get. The problem is that reversing the trajectory requires the type of social and political trade-offs that politicians struggle to sell ahead of electoral cycles.

As the country heads into 2024 and its most unpredictable general election, the appetite for even considering tacking the difficult challenges is lower than before.

The issue with the lethargy is that its long-term costs are a significant intergenerational curse.

In Greece, the consequence of junk status has been the imposition of higher debt costs and longer debt commitments. While an average advanced economy has debt maturities of around seven years, Greece languishes at 20 years on average.

This means that the move back to investment grade status will only benefit Greek citizens substantively once the sins of the past are fully extinguished.

Given the fact that a country with at least the political courage to make difficult decisions still required more than a decade just to fix the fundamentals, one can only fear the prospects of a country like South Africa where the seeds of political courage have not even been planted.