Moody’s affirms SA outlook as stable

Ratings agency Moody’s has affirmed its rating on SA and kept it on a stable outlook, saying it expects low economic growth and a stable government debt ratio of 80%.

While SA’s economic and fiscal performance could prove better than expected if reforms accelerated, it could also fall short or be reversed, the agency said.

“The Ba2 ratings affirmation reflects SA’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,” Moody’s said in a ratings update late on Tuesday night.

“However, it also acknowledges chronic challenges posed by the country’s extensive 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.” 

Its update comes after rival S&P Global upped its outlook on SA from stable to positive on November 15, citing improved reform and growth potential. However, S&P’s rating on SA is one notch below that of Moody’s, as is that of the third big global ratings agency, Fitch.

Moody’s rating remains at Ba2, which is two notches below investment grade, and affirmed its “stable” outlook on the rating.

Citi economist Gina Schoeman said the Moody’s report was no surprise. “But what is important is the tone. If you read the recent IMF report, S&P moving to a positive outlook, Fitch retaining its rating and now Moody’s, there is a more positive and constructive slant to what they are saying — but also an early days, wait and see,” she said. 

The Moody’s report came after the release of shock economic growth figures on Tuesday that showed the economy had contracted by 0.3% in the third quarter, in contrast to market expectation for a 0.4%-0.5% expansion. It prompted economists to revise down their growth forecasts for this year. 

Moody’s would have compiled its report well before the release of the latest GDP figures. It projects a gradual increase in 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.

It expects the energy sector to drive private investment. “However, this level of growth is unlikely to significantly reduce unemployment or mitigate social pressures,” it said.

It cautioned that while factors such as structural reforms and an improved business climate could lead to higher-than-expected growth, global economic developments — particularly an escalation of trade tensions between the US and China — could weaken SA’s outlook. 

The ratings agency made approving comments about the smooth formation of the government of national unity (GNU) following the May elections, and its commitment to continuing structural reforms. It said the GNU’s more inclusive and co-operative approach to governance, along with a more pluralistic political climate, boded well for social cohesion.

The submission of the medium-term budget just three months into the new government was a promising sign. But addressing SA’s structural weaknesses would take time and would be a significant test for the ruling coalition, it said.

The Treasury welcomed Moody’s acknowledgment that the GNU would pursue structural reforms and ease growth bottlenecks, and said economic reforms were beginning to bear fruit.

“Electricity availability has improved, the logistics system is stabilising and the cost of business is declining in some areas of the economy. Government is also transforming the way it prepares and delivers infrastructure projects,” the Treasury said in a statement on Tuesday night.

Schoeman said what was important for SA was to keep going with incremental improvements. She expects that one or both of Moody’s and Fitch could move their ratings outlooks to positive next year, depending on SA’s progress, and at least one ratings upgrade might be possible in 2026. 

Update: December 4 2024

This story has been updated with new information. 

joffeh@businesslive.co.za