South Africa still ‘junk’
South Africa is unlikely to recover its investment-grade credit rating in the foreseeable future, according to credit analysts.
Despite recent investor optimism sparked by the formation of a coalition government and eight months of uninterrupted power supply, significant fiscal challenges continue to weigh heavily on the nation’s creditworthiness.
S&P Global, one of the leading credit rating agencies, is scheduled to review South Africa’s sovereign rating on Friday (15 November), which currently stands at “BB-“—three notches below investment grade—with a stable outlook.
Fitch Ratings has assigned South Africa the same “BB-” rating and stable outlook, while Moody’s rates the country slightly higher at “Ba2,” two notches below investment grade.
Analysts have noted that meaningful improvements in these ratings remain a distant goal.
The coalition government’s promises of accelerated economic reforms and improved infrastructure have bolstered business confidence.
However, the deep-seated fiscal issues, including soaring public debt and sluggish economic growth, continue to overshadow these gains.
South Africa’s economy is forecast to grow by just 1.1% this year, significantly lagging behind other emerging markets.
Sustained growth of around 2% and tangible evidence of fiscal stability are considered prerequisites for any potential upgrade in outlook by credit agencies. Analysts believe that such progress might only be evident by the first half of 2025.
Public debt remains a critical concern. South Africa’s debt-to-GDP ratio has climbed dramatically, rising from 23.6% in 2009 to 74.1% in 2023.
The government aims to stabilise this figure at 75.5% by 2026, but some credit agencies, such as Fitch, project it will reach 76.9% by 2027.
This discrepancy underscores doubts about the feasibility of the government’s fiscal targets, particularly as the state grapples with financial pressures from struggling entities like the state-owned logistics company Transnet.
Fitch has acknowledged that if South Africa’s government adheres to its three-year fiscal plan and demonstrates progress in stabilising debt, a revision of the nation’s credit outlook could be considered. =
However, Fitch has also highlighted the optimistic nature of the government’s budget forecasts, noting that achieving these goals will require more robust economic performance and effective fiscal discipline.
Similarly, S&P and Moody’s would require evidence of faster economic growth and a credible trajectory for reducing public debt before considering any changes to their ratings.
Miyelani Maluleke, head of South Africa macroeconomics research at Absa, emphasised the continued risks to the country’s fiscal outlook, stressing that meaningful improvements in economic performance and public finances are essential to gaining the confidence of credit rating agencies.
Ultimately, while the current government’s efforts have created a sense of optimism among investors, credit analysts caution that South Africa’s return to investment-grade status remains a long-term objective.
Delivering economic reforms and ensuring fiscal stability will be critical to shifting the narrative and convincing credit agencies to improve the country’s rating.
Until then, the challenges of high debt levels, slow economic growth, and fiscal uncertainty will likely continue to constrain South Africa’s credit prospects.
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