SA is trapped in a negative cycle in which subdued growth and weak investor confidence push the Reserve Bank to keep interest rates high to attract capital inflows, Ratings agency Moody’s warns.
Those high rates, in turn, stifle domestic investment, further weighing on growth and perpetuating the conditions that keep borrowing costs elevated.
The warning comes as the Reserve Bank’s monetary policy committee meets this week, with a rates decision due on Thursday. Economists expect no change.
In a new report, Moody’s said SA’s sophisticated financial markets, often regarded as a regional strength, are being undermined by fiscal strains and structural weaknesses that keep borrowing costs higher than those of many emerging market peers.
The report shows that despite having one of the most advanced capital markets in Sub-Saharan Africa, SA pays more to borrow than many major emerging markets, including India, Malaysia, Poland and Romania.
“Without improvements, SA risks continuing a negative spiral in which high interest rates aimed at attracting inflows amid subdued growth limit domestic investment and further hinder economic prospects,” Moody’s said.
Though banks have managed to preserve profitability by swiftly repricing assets and keeping net interest margins steady at about 3% since 2022, according to Moody’s, businesses remain under strain.
The agency notes that debt servicing costs for corporates will “remain historically high”, limiting appetite for expansion and investment. For households, the same elevated interest rate environment translates into expensive mortgages, vehicle finance and credit, adding further pressure to already stretched budgets.
Moody’s Ratings compared SA with Kenya and Nigeria, the two other largest private-debt markets in Sub-Saharan Africa.
It found while SA’s borrowing costs are lower than those of these peers, thanks to deeper markets and more credible monetary policy, they remain much higher than in major emerging economies.
Kenya continues to battle policy uncertainty and shallow savings pools that crowd out private borrowers, while Nigeria’s high inflation and limited domestic savings keep its debt costs elevated.
SA avoids those extremes but still pays a premium internationally because of its fiscal weaknesses and subdued growth.
Moody’s identifies chronic fiscal pressures, including a rising debt burden and contingent liabilities from state-owned enterprises, as a core reason investors continue to demand a premium. Structural obstacles, from weak business sentiment to inefficient public spending and resistance to deeper private sector participation in state-controlled industries, add further weight.
By contrast, long-term borrowing costs in peers such as India, Malaysia, Poland and Romania are materially lower, even though these economies also face fiscal and political constraints.
Moody’s notes that SA’s real interest rates, including long-term yields, remain higher than many major emerging markets, reflecting weak business sentiment, limited competition and structural fiscal pressures.
The implication, Moody’s argues, is that SA’s problem is not market access but cost. The country enjoys a broad investor base ranging from pension funds to insurers and foreign asset managers, and its diverse range of investment products anchors the local yield curve. But until meaningful fiscal consolidation and pro-growth reforms take hold, the premium will persist.
Update September 15, 2025 This story has been updated with more information.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.