JOHANNESBERG, June 8 – Fitch Ratings has upgraded South Africa’s Long-Term Foreign and Local Currency Issuer Default Ratings to BB from BB-, marking the country’s first upgrade from the agency in nearly two decades.
The rating agency cited South Africa’s improved fiscal management, continued budget consolidation and progress in addressing structural economic constraints as key factors behind the decision.
According to Fitch, government debt levels have remained significantly below the levels anticipated when the country was downgraded in 2020, despite years of weak economic growth and a series of domestic and global shocks.
South Africa’s National Treasury welcomed the upgrade, describing it as an important milestone in restoring investor confidence and strengthening the country’s fiscal credibility.
Treasury Director-General Duncan Pieterse said the decision signals a clear improvement in South Africa’s credit profile after more than a decade of rating downgrades.
“South Africa still has some way to go to regain its investment-grade credit rating, but for the first time in more than a decade we are seeing a clear turnaround in the downward ratings trend,” Pieterse said.
Fiscal Consolidation Drives Upgrade
Fitch highlighted South Africa’s consistent fiscal discipline as one of the primary reasons for the upgrade.
The country has recorded average primary budget surpluses of around 1% of GDP over the past four years, a significant improvement from the fiscal deficits that characterized much of the previous decade.
The agency expects primary surpluses to continue widening, reaching approximately 1.7% of GDP by fiscal year 2027, supported by strong revenue collection and restrained government spending.
As a result, Fitch forecasts the consolidated fiscal deficit will narrow further over the medium term.
Debt Levels Expected to Stabilize
The rating agency projects South Africa’s debt-to-GDP ratio will stabilize at around 80% over the next two years.
Although this remains well above the median level for countries with a BB rating, Fitch noted that improving fiscal performance and stronger market sentiment have significantly improved debt dynamics.
The agency expects debt stabilization to be supported by continued primary surpluses, better revenue performance and lower financing costs resulting from improved investor confidence.
Structural Reforms Supporting Growth
Fitch also pointed to progress in addressing long-standing supply-side constraints, particularly in the energy and logistics sectors.
Reforms aimed at improving electricity generation, reducing transport bottlenecks and enhancing operational efficiency are expected to support economic activity over the coming years.
The agency forecasts South Africa’s economic growth will gradually improve from an average of 0.7% recorded between 2023 and 2024 to around 1.4% by 2027.
While growth remains below the average for similarly rated economies, Fitch said structural reforms are helping create a more supportive environment for investment and business activity.
Strengths and Challenges
Despite the upgrade, Fitch noted several factors that continue to constrain South Africa’s credit profile.
These include persistently low economic growth, high levels of poverty and inequality, elevated public debt and one of the highest interest-payment burdens among similarly rated sovereigns.
The agency estimates interest payments will account for approximately 19% of government revenue by 2027, significantly above the BB-rated sovereign average.
However, South Africa’s debt structure remains a major strength.
Most government debt is denominated in local currency, reducing exposure to foreign exchange risks, while the average maturity of debt exceeds ten years, limiting refinancing pressures.
Iran Conflict Risks Seen as Manageable
Fitch acknowledged that higher oil prices linked to tensions in the Middle East could temporarily increase inflation and fuel costs. However, the agency believes the fiscal impact remains manageable.
South Africa’s temporary fuel levy relief programme is expected to cost approximately 0.2% of GDP, with stronger commodity-related revenues likely to offset the revenue shortfall.
Fitch forecasts inflation will rise to 4.5% by the end of 2026 before easing back toward the target range in 2027.
The agency also expects the South African Reserve Bank to maintain a cautious policy stance, including the possibility of an additional interest rate increase later this year.
Political and External Outlook
Fitch said political tensions are likely to increase ahead of South Africa’s municipal elections scheduled for November 2026 but expects the Government of National Unity to remain intact.
The agency also maintained a stable outlook, reflecting expectations that fiscal discipline, reform momentum and improving economic fundamentals will continue over the medium term.
The upgrade follows a recent decision by Moody’s Ratings to revise South Africa’s sovereign outlook to positive from stable, further reinforcing improving investor sentiment toward Africa’s most industrialized economy.
