JOHANNESBURG, Oct 26 – Moody’s Ratings said South Africa’s medium-term budget policy statement was positive for the country’s credit profile, citing continued fiscal consolidation, tighter monetary policy and weaker nominal gross domestic product growth than assumed in February.
The ratings agency said the government had maintained its fiscal consolidation efforts despite higher oil prices, signalling continued commitment to improving public finances. However, it noted that nominal GDP growth was weaker than previously projected, highlighting ongoing challenges for the country’s fiscal outlook.
Moody’s rates South Africa Ba2 with a positive outlook. The agency did not announce a rating action alongside its assessment of the budget statement.
The government lowered its consolidated fiscal deficit target for the 2026 fiscal year to 3.9% of GDP from 4.0%, supported by a 17.1 billion rand ($1.03 billion) upward revision to gross tax revenue.
The adjustment reflects improved revenue expectations, although the country continues to face pressure from elevated debt levels and the cost of servicing government borrowing.
Moody’s forecasts government debt will decline to 84.9% of GDP by fiscal 2028, from approximately 86.8% in fiscal 2025. The agency said debt had probably peaked, suggesting that sustained fiscal consolidation could gradually stabilise the government’s debt trajectory.
Despite the projected improvement, debt affordability remains a significant constraint on South Africa’s credit profile. Interest payments absorbed 18.8% of general government revenue in fiscal 2025, Moody’s said, limiting the resources available for public services and other government priorities.
The agency also identified draft legislation intended to establish fiscal rules for budgeting and public debt as credit positive. Such rules could strengthen fiscal discipline and provide a more predictable framework for government borrowing and expenditure.
However, Moody’s cautioned that the legislation’s credibility would depend on consistent implementation. Without a binding numerical fiscal target, the framework would need to demonstrate that it could guide actual budget decisions rather than simply establish broad policy principles.
South Africa’s medium-term fiscal outlook will therefore depend on whether the government can sustain deficit reduction, manage debt-servicing costs and implement credible fiscal rules while navigating weaker nominal growth and external pressures, including higher oil prices.
