Moody’s is worried about South Africa’s mounting debt

Moody’s has warned that South Africa’s debt could hit 65% of GDP over the next five years – but doesn’t plan to downgrade the country to junk just yet.

The ratings firm is the last of the ‘big three agencies’ to have South Africa above full junk status. It has retained South African debt ratings at investment grade since 2017, with this now on review.

In a research report released on Tuesday (16 April), Moody’s said that South Africa’s credit profile is supported by the strength of its core institutions, deep and well-developed financial sector and markets, and its limited exposure to foreign exchange volatility.

Key credit challenges stem from slow growth amid persistently high unemployment, particularly among young people, it said.

It further warned that deep inequalities contribute to tensions that feed into political risk and hamper the progress of reforms that would unlock economic potential.

“While South Africa’s economic growth will remain slow and fiscal strength will continue to erode, we expect the country’s credit profile to remain in line with those of Baa3-rated sovereigns,” said Lucie Villa, the report’s co-author.

“We anticipate that government policy and the institutions will remain focused on addressing this trend but any reversal will be gradual at best given that social, economic and fiscal policy objectives will remain difficult to reconcile.”


Moody’s said that South Africa’s government indebtedness is currently in line with Baa3-rated sovereigns, but that it is on an upward trend.

It expects government debt to reach 65% of GDP by fiscal 2023 under the baseline scenario.

“The successful implementation of structural reforms to raise potential growth and stabilise and eventually reduce the government’s debt burden relative to Baa3-rated peers would be positive for South Africa’s credit profile,” it said.

“Conversely, the credit profile would face downward pressure if Moody’s expects that government debt and contingent liabilities risk from SOEs will continue to rise to levels no longer consistent with a Baa3, or that medium-term growth will persist at very low levels as recorded in 2018.”

Read: What Moody’s thinks about Eskom, the elections and the economy

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Moody’s is worried about South Africa’s mounting debt