Major ratings agency shares good news about South Africa

S&P Global Ratings has affirmed South Africa’s long-term foreign and local currency debt ratings at ‘BB-’ and ‘BB’, respectively, while maintaining its positive outlook for the country’s finances. 

This was revealed by the rating agency in its latest rating action for South Africa late on 16 May, based on the latest developments regarding the country’s economy and particularly the government’s finances. 

S&P expects South Africa’s GDP growth to rise to an average of 1.5% over 2025-2028 after a subdued 0.6% in 2024. 

However, it warned that ongoing logistical bottlenecks and global tariff-related pressures will constrain economic activity.

The ratings agency explained that its positive outlook reflects the potential for stronger growth than it currently expects.

This is despite trade- and tariff-related headwinds as the agency pointed to continued government debt consolidation and the ability of the coalition government to accelerate economic and fiscal reforms while addressing infrastructure pressures.

The sustainability of the Government of National Unity (GNU) remains key as S&P said its survival bodes well for broad policy continuity and enhanced reform momentum. 

Disagreements with coalition partners around hiking VAT forced the government to amend and re-table the budget for fiscal year 2025. It will be presented for the third time on May 21. 

Despite the significant disagreements, the GNU has managed to remain intact, which is a good outcome for the country.

Despite re-tabling the budget and the likely removal of VAT, the government plans to continue with fiscal consolidation. 

Fiscal financing benefits from access to deep domestic markets and an actively traded currency, which were major positive factors in the rating agency’s decision. 

S&P has therefore affirmed its’BB-/B’ foreign currency and ‘BB/B’ local currency long- and short-term ratings on the sovereign. The outlook remains positive.

The agency said it could even raise the ratings if an improving track record of effective reforms strengthened economic growth and reduced government debt and contingent liabilities.

However, it warned that it could also revise the outlook to stable if ongoing economic and governance reforms do not progress, resulting in a deterioration in economic growth or higher-than-expected fiscal financing needs and interest burden. 

This could result, for example, from worsening constraints on the economy from critical infrastructure.

The ratings on South Africa benefit from the country’s sizable and sophisticated financial system that provides a deep funding base for the government, it said.

The country also has relatively strong institutions, with good checks and balances, particularly its central bank, the South African Reserve Bank. 

South Africa’s ratings are constrained by relatively low GDP per capita and low GDP growth rates, sizable fiscal deficits and high government debt.