Moody’s sees little reason to lift SA’s credit rating soon

In comments that suggest little room for the credit rating to move upward anytime soon, Moody’s expects a mild pickup in growth to about 1.8% by 2027 and government debt to hover around 80% of GDP for the next two to three years.

In a periodic review of SA’s credit profile, which kept the country’s Ba2 long-term issuer rating intact, Moody’s said the rating is constrained by persistent, deep-rooted challenges such as low growth, domestic political tensions and perceptions of corruption.

“Structural reform progress has addressed some economic constraints, particularly in the energy sector, though we are yet to see concrete signs of a sustainable improvement in economic potential,” Moody’s said in a note posted on its website.

“The financially weak state-owned enterprise sector poses risks to public finances, though these have diminished with the operational improvements at Eskom (B2 stable), and the government’s commitment to fiscal consolidation will also help prevent a further material rise in already elevated government debt.”

Reinforcing Moody’s broader theme of structurally low growth, one of the key reasons SA remains stuck in junk status credit territory, Moody noted that GDP growth of 0.6% in 2024 fell short of expectations.

Looking ahead, global economic headwinds have further dampened growth prospects. While SA’s direct exposure to new US tariffs is limited with exposure to the US accounting for only 2% of GDP, the broader trade tensions could hit commodity prices, compounding existing vulnerabilities.

“As such, we have lowered our real GDP growth forecast slightly to 1.5% in 2025, from 1.7% previously, with growth projected to gradually improve to reach 1.8% in 2027,” Moody’s said in the review, conducted on May 29.

Still, Moody’s expressed a measured confidence in the government of national unity (GNU), acknowledging that improved political co-operation is unlikely to derail fiscal consolidation efforts but warned that frictions could make it harder for the government to attract private sector investment.

“The budget confirms the government’s focus on fiscal consolidation and the improved political co-operation supports our baseline assumption that, while frictions in the GNU will remain, the coalition will ultimately find a compromise to allow key legislation to move forward,” Moody’s said.

“Ongoing frictions within the GNU are also likely to dampen investor sentiment, making it harder for the government to achieve its aim of raising private sector investment, which supports our view that economic reform progress will remain gradual. Heightened tensions with the US can also pose a risk to foreign investor sentiment and have the potential to open up further rifts in the governing coalition,” the ratings agency said.

SA has been wallowing in full junk territory since 2020 when Moody’s joined peers S&P Global and Fitch in a painful reckoning of its deteriorating fiscal and economic fundamentals.

motsoenengt@businesslive.co.za