SA’s sovereign credit ratings could improve if the government “sticks to its fiscal and structural reform plan”, said Ravi Bhatia, S&P Global Ratings’ lead analyst for African sovereigns last week.
Bhatia told Business Day at the ratings agency’s annual SA conference in Sandton: “If there’s higher growth and there’s faster debt consolidation, and the contingent liabilities around Eskom and other unplanned expenditure are contained, then the metrics will start to improve quite rapidly.”
The GDP growth rate that could lead to a firm improvement in metrics fell between 2% and 3%, he said. S&P expects GDP growth of 1.3% this year — down from its 1.6% forecast in November.
S&P maintained its positive outlook in May, first assigned in November 2024. The May announcement preceded the tabling of the third iteration of the 2025/26 budget — a politically fraught process that tested the resilience of the government of national unity (GNU).
S&P’s foreign currency rating on SA, at double B minus (BB-), is three notches into subinvestment grade (junk) territory. This aligns with Fitch’s rating and remains one notch below Moody’s. An upgrade would mark a turning point after a prolonged cycle of downgrades, which began in 2012.
Responding to the latest budget, Bhatia said that if growth holds up, “and they [the government] are able to stick to their plan, then yes, they’re running primary surpluses and some debt consolidation”, factors S&P would take into account during a ratings assessment.
He acknowledged the familiar structural hurdles — particularly energy supply, port capacity and rail logistics — but stressed SA retains key macroeconomic strengths.
“Externally, actually, SA is quite strong,” he said. “They run relatively small current account deficits, a net external asset position and reserves are kind of adequate.”
On Thursday, Business Day reported SA’s current account deficit improved marginally in the first quarter, narrowing slightly compared to the fourth quarter.
Bhatia said S&P views the continued functioning of the GNU as a sign of political maturity, even as tensions have surfaced over tax policy and spending trade-offs.
He also believes the arrangement has long-term potential and noted that they view the DA’s presence as broadly adding momentum to reform efforts.
“It seems that the era of coalition politics is here now,” he said. “So basically ... the ANC is accepting the coalition dynamics and that they have to work with coalition partners.
“The DA is pushing reforms from within the coalition. We’re viewing that reasonably constructively.”
While acknowledging some structural reform progress, Bhatia said key state-owned enterprises (SOEs) remain bottlenecks to growth.
“The SOE structure is not conducive to rapid growth,” he said. “They are often a drain on fiscal resources ... and they often constrain the wider economy, for example, by not producing enough electricity or not shipping enough commodities.”
This, he added, has so far prevented the reform agenda from translating into meaningful GDP gains.
“We still have around a 1.5% [growth rate] in the forecast period... It’s not great, because on a per capita basis, that basically means incomes in SA are flat.”
In response to a question about better use of multilateral concessional borrowing — low-interest loans typically offered by institutions such as the World Bank or the African Development Bank to support development objectives — Bhatia said such financing could be beneficial.
“There are lots of countries that max out their concessional loans because it’s super cheap, so why not take cheap money?” he asked.
Bhatia was not overly concerned about geopolitical tensions influencing S&P’s risk outlook for SA.
“I would say it’s not the most exposed country, but it’s also not immune to global events, so it’s kind of in the middle and the biggest channel that geopolitical risk comes through typically is commodity prices, where they get lower prices for metals and lower demand, and then that has an impact on exports,” he said.
S&P’s next scheduled review of SA’s sovereign credit ratings is expected in November.
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