JOHANNESBURG, Oct 20 – South Africa is approaching a potential credit rating upgrade as improving fiscal conditions strengthen the case for an end to more than a decade of elevated sovereign credit risk.
Finance Minister Enoch Godongwana is expected to reaffirm the government’s commitment to fiscal discipline when he presents the medium-term budget policy statement in Cape Town on Wednesday. Economists expect the Treasury to report a smaller budget deficit than previously forecast and a decline in the country’s debt-to-GDP ratio for the first time in more than two decades.
Moody’s Ratings and S&P Global Ratings are scheduled to review South Africa’s credit rating on November 27, while Fitch Ratings’ next review is set for December 11.
Four of 11 economists surveyed by Bloomberg, including analysts at Bank of America, Morgan Stanley, BNP Paribas SA and Old Mutual, expect a rating upgrade by the end of 2026. The remaining respondents anticipate an upgrade in 2027.
Tatonga Rusike, Bank of America’s sub-Saharan Africa economist, said Moody’s could raise South Africa’s rating to Ba1, while an S&P upgrade to BB+ remains less certain. Fitch, which upgraded the country in June, is not expected to move as quickly.
Moody’s said last week that Africa’s largest economy was heading towards its first upgrade by the agency since 2009, provided its fiscal performance continues to improve.
Debt trajectory strengthens the case for an upgrade
Morgan Stanley expects S&P to raise South Africa’s rating to BB+ in November, followed by a possible Moody’s upgrade in early 2027. Both agencies currently have the country on a positive outlook.
An upgrade by either agency would move South Africa to one notch below investment grade, bringing it closer to regaining investment-grade status after years of being rated below that threshold.
Investec Wealth & Investment International estimates there is a greater than 50% chance that the country will regain investment grade within two years, while Bank of America expects the milestone before 2029.
However, rating agencies will require evidence that fiscal improvements can be sustained. Rusike said this would include lower budget deficits, falling government debt and stronger underlying economic growth.
South Africa’s debt trajectory is central to that assessment. Economists surveyed by Bloomberg expect the debt-to-GDP ratio to decline to 77.5% in the current fiscal year, slightly above the Treasury’s projected 77.3%. They also expect the government to have achieved its target of stabilising debt in the fiscal year ended March 2026.
Budget deficit forecast improves
The medium-term budget statement is expected to show the Treasury outperforming its consolidated budget-deficit forecast of 4% of gross domestic product for the 2026-27 fiscal year.
Economists surveyed by Bloomberg estimate the shortfall at 3.8% of GDP, reflecting the government’s efforts to contain expenditure and improve public finances.
Keabetswe Mojapelo, head of economic research at Old Mutual, said: “We are in a position where we have our public finances in order,”
A smaller deficit would reduce the government’s borrowing requirements relative to the previous forecast and support efforts to stabilise public debt. Whether that translates into a sustained decline in debt will also depend on economic growth, revenue performance and future spending commitments.
The government is also planning to introduce a fiscal anchor, a framework intended to strengthen discipline over public finances and provide a clearer basis for managing debt over time.
External shocks test fiscal resilience
South Africa’s fiscal performance has drawn attention as the government navigates heightened global uncertainty, including the economic fallout from the wars in Iran and Ukraine.
Despite these pressures, the country has maintained spending restraint, while the broader fiscal position has remained resilient.
Mojapelo said the country had weathered the latest external shock without the deterioration in public finances that similar episodes have historically produced.
“We’ve managed to weather this current shock quite well from a fiscal perspective and this is really unprecedented on the South African side because normally these kinds of shocks put us in a worse off position,” she said.
She added that two rating agencies had placed South Africa on a positive outlook and expressed confidence in the fiscal trajectory, including the government’s ability to manage potential revenue windfalls.
The performance of public finances through periods of external volatility is relevant to rating agencies assessing whether recent improvements reflect a lasting change rather than temporary favourable conditions.
Fiscal gains must be sustained
The upcoming budget statement will provide a further assessment of whether South Africa can maintain its debt stabilisation efforts while supporting economic growth.
A rating upgrade could improve the country’s standing among international investors and potentially reduce borrowing costs over time. However, the extent of any benefit would depend on market conditions, investor demand and the scale of the rating change.
For rating agencies, the central question is whether South Africa can sustain lower deficits, bring its debt ratio onto a durable downward path and strengthen trend growth.
The November and December reviews will test whether recent fiscal progress is sufficient to justify a change in the country’s sovereign credit assessment.
