In the curious communique, entitled Credit ratings and how they work, the National Treasury explains the impact of a downgrade to junk on the real economy. It warns of higher interest rates for South Africans, as well as increases in food, electricity and petrol prices.
A junk rating, the Treasury warns, will lead to higher unemployment and less government spending on social programmes. All seem very real possibilities for South Africa.
But these are less the responsibility of the South African people than their increasingly irresponsible government to address. Imploring the populous to “help ease the difficulties” by saving more and demonstrating less sounds insulting.
The government and the National Treasury are doing exactly the opposite of what their mandate requires. The job of the Treasury is to support the macroeconomic stability necessary for growth.
In the words of former finance minister Gordhan, the role of the “finance family” is to maintain stability by doing “whatever we can to reassure the rates market, business people and ordinary South Africans”.
The spread on South African debt may only have increased by 35bp since Gordhan was axed, but this is more to do with strong market technicals than confidence in the new regime.
Should a spike in US Treasury yields or a major fall in oil prices put an end to the current EM bull-run, South Africa may be left in a stickier position.
The Treasury's Twitter infographic talks of low confidence resulting in low investments and of poor job creation resulting from a second downgrade — in those respects, it is bang on. In the space of a week, South Africa has gone from being one of the most respected issuers in the financial markets to one of the least.
But that is all the government's doing and not the responsibility of the South African people.
What the Treasury might have included in its Twitter release is that Standard & Poor’s downgraded South Africa precisely because of poor political decision making and not — as the Treasury claimed — because of high government borrowing.
The Treasury claims it is doing “all it can to boost economic growth by working together with business, civil society and labour… to ensure South Africa remains an investment grade country”.
But to borrow another trope from the US President, this is #fakenews.
The National Treasury details the government’s debt liabilities — SAR150bn ($11bn) in interest costs and SAR1trn (inaccurate) in outstanding debt — and explains that if the government's cost of borrowing increases (i.e., in the result of a second downgrade) it will have to cut social spending or tax the country’s workers even more.
But any further downgrade will be the direct result of government action, not because the public isn’t saving enough.
This is a very precarious time for South Africa, and the new finance minister is lucky that global market conditions are still beneficial for his country.
More should be done to reassure investors and the international business community that there will be some continuity from the much-admired Gordhan’s tenure. Threatening the South African people, instead of taking responsibility for the rating, is exactly the kind of approach that won't work.