Moody’s Investor Services has affirmed South Africa’s sovereign’s long-term foreign and local currency debt ratings at ‘Ba2’ and maintained the stable outlook.
According to Moody’s, the ratings affirmation reflects South Africa's credit strengths from effective, core institutions such as the judiciary and the central bank, a robust, deep financial sector and a solid external position.
In general, a credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of South Africa thus having a big impact on the country's borrowing costs.
However, the ratings affirmation also acknowledged chronic challenges posed by the country's inequalities, which hamper reform progress and fuel social risk, as well as persistent structural constraints on economic growth, and a relatively high and costly debt.
“The recently formed Government of National Unity (GNU) has committed to continue the reform momentum of the previous administration, which began to show progress in the energy sector,” Moody’s said.
“However, we anticipate only a modest acceleration in economic growth. In turn, subdued growth complicates the challenge of preserving debt sustainability while meeting social demands and stimulating investments in critical network infrastructure, particularly in the energy and logistics sectors.”
Moody’s said the stable outlook reflected its expectations of low economic growth, a stable government debt burden at around 80% of GDP, and balanced risks.
“The ratings affirmation highlights that, despite some nascent improvements, South Africa's economic growth is likely to remain subdued,” it said.
“We project a gradual increase in real GDP growth to 1.7% in 2025-26 from 1.1% in 2024 driven by domestic demand, less restrictive monetary policy and continued favourable commodity prices. We expect the energy sector to increasingly drive private sector investments.
“However, this level of growth is unlikely to significantly reduce unemployment or mitigate social pressures. Further private sector involvement across other sectors is likely to be gradual.”
In response to Moody’s, the National Treasury said the government welcomed the ratings agency’s acknowledgement that the Government of National Unity (GNU) will pursue structural reforms and ease growth bottlenecks.
“Government is pursuing policies to achieve rapid, inclusive and sustainable economic growth. Economic reforms are beginning to bear fruit; electricity availability has improved; the logistics system is stabilising and the cost of doing business is declining in some areas of the economy. Government is also transforming the way it prepares and delivers infrastructure projects,” Treasury said.
“It is mobilising private sector resources that will augment public-sector capability and provide new channels for financing. As stated in the 2024 Medium Term Budget Policy Statement (MTBPS), government’s growth strategy over the medium term will be anchored by the following pillars: (i) Maintaining macroeconomic stability; (ii) Implementing structural reforms; (iii) Building state capability; and (iv) Supporting growth-enhancing public infrastructure investment.”
This comes after S&P Global Ratings last month decided to revise South Africa’s ratings outlook from stable to positive on improved reform program and economic growth potential.
However, S&P maintained South Africa’s credit ratings status below investment grade, with the sovereign’s long-term foreign and local currency debt ratings at ‘BB-’ and ‘BB’, respectively.
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