One of the questions I kept getting in the run-up to, and after, SA being removed from the Financial Action Task Force (FATF) greylist on Friday was, “so what does this mean for growth?”.

This desire to see everything in terms of the effect on economic growth is not necessarily a bad thing but is perhaps an indication of our desperation for growth drivers to emerge and surprise us.

But just as with credit downgrades in the past, when the economy slid into sub-investment (junk) grade, so with the greylist. People have perhaps forgotten that there was no immediate hit to growth as SA entered junk territory. So we are unlikely to get a sudden spurt of growth on the way out either.

There is an overly simplistic view of what these external “triggers” do. On the way into greylist territory, foreign financial institutions already held their own internal risk assessments half a notch or so worse than our position outside the greylist at the time might have suggested.

When SA was placed on the greylist these assessments didn’t markedly change and on the way out there is also likely to be little reaction. Foreign banks spend a huge amount of time assessing countries’ risks, particularly related to anti-money-laundering, terrorist financing and the like — not just normal credit risk.

This is generally true for the effect on larger corporates with offshore bank exposure for banking services and borrowings. Here credit conditions were already moderately tight and tightened only slightly on SA’s entry to the greylist.

There is relatively limited scope for further adjustments to SA risk perceptions by foreign banks, assuming we avoid shooting ourselves in the foot and continue with a steady implementation of promised reforms, not to mention the maturing of the political system.

Higher growth and better resourcing of institutions such as the Financial Intelligence Centre and National Prosecuting Authority, and accountability in general, could wash out “headline” risk.

At the margin there may over time be some loosening of access to, and perhaps cost of, credit for larger corporates, but not enough to shift GDP growth forecasts. But “at the margin” is what these things are about.

The cost imposed by the greylist was the automatic ratcheting up of anti-money-laundering and know-your-customer requirements for offshore institutions, especially from the perspective of smaller entities such as charities and individuals, or smaller businesses trying to export. As these demands fall away, so will the frictional costs associated with them.

An under-reported element of the greylist story over the past few years has been the amount of extra paperwork, ID checking and the like that any entity remotely connected with SA had to undertake to deal with an offshore bank either in SA or abroad. These frictional costs were never enough to have had anything beyond a rounding error impact on growth, but their removal is positive nevertheless.

That SA should never have found itself on the greylist in the first place is not discussed enough and nor is the initial lack of a whole-of-government approach to change things until it was obviously about to happen and was too late. The key now is that lessons are learnt and that the government is able to respond faster under the National Treasury’s leadership to the steady rise in expectations from the FATF over time. Otherwise, SA could find itself back on the greylist in 2028.

We might well get another positive surprise in just under a month’s time, when rating agency S&P is scheduled to provide an update on its credit assessment. Businesses and investors have been glum for a long time about the prospects of ever escaping being a junk-rated sovereign.

Yet the long-overdue correction of SA’s fiscal credibility as the Treasury holds the line on both spending and debt issuance (ignoring the VAT madness for a moment) is paying dividends as bond yields fall. While part of this is down to the issue of the inflation target change, another part is attributable to the Treasury holding the line, and this could be reinforced at the next medium-term budget policy statement (MTBPS).

Indeed, in the period since SA was put on the greylist, local 10-year bonds have seen their yield fall by about 300 basis points (bps). To extract from the inflation expectations issue, we can look at SA’s dollar-denominated bonds and see that similar bonds for the same period have seen their yield spreads over the US equivalent bonds fall by about 285bps.

The market already prices SA’s debt as being about half a notch better than the average of its peers, indicating that the market picks up on improvements that rating agencies take time to acknowledge. An S&P upgrade and decent MTBPS that reinforce recent falls in bond yields could start to be a game changer, especially if combined in February with a formal inflation target change.

Far too much populist economic commentary focuses on the need for looser fiscal and monetary policies and pays no attention to issues such as regulations to keep SA off the greylist permanently.

Something business can actually get excited about, because it will drive growth, is the long-term effect of conservative macroeconomic policy in lower bond yields and borrowing costs and a low cost of debt for businesses.

• Peter Attard Montalto leads on political economy, markets and the just energy transition at Krutham, a SA research-led consulting company.

This article first appeared in Business Day.