Ratings agency S&P Global has upgraded SA’s long-term foreign currency credit rating, meeting several expectations for an improvement following this week’s medium-term budget policy statement (MTBPS), SA’s recent removal from the grey list and signs of somewhat better growth.
The upgrade lifts SA’s foreign currency rating to BB from BB-, moving it two notches below investment grade and bringing S&P’s assessment in line with Moody’s for the first time in several years. The local currency long-term rating was also raised, to BB+ from BB. S&P affirmed the positive outlook, indicating that a further upgrade is possible if fiscal and economic reforms continue to gain momentum.
In its rationale, S&P cited stronger-than-expected tax revenue, primary budget surpluses, and reduced risks linked to Eskom and other state-owned entities.
“The upgrade reflects SA’s improving growth and fiscal trajectory, alongside the reduction in contingent liabilities largely tied to performance improvements at the state-owned electricity utility, Eskom,” S&P said.
The upgrade was supported by a combination of improved growth prospects, stronger public finances, and structural reforms gaining traction. S&P expects SA’s GDP growth to rise to 1.1% in 2025 and to average 1.5% from 2026 to 2028, “as reforms to electricity and other sectors support growth”.
Revenue collection has outperformed budget targets, and, alongside restrained expenditure, this is helping the government maintain primary budget surpluses.
Contingent liabilities are also expected to decline, with Eskom posting its first profit in eight years and requiring less financial support from the state. Reform momentum has accelerated under the second phase of Operation Vulindlela.
“Reforms of the state-owned rail and port utility, Transnet, are also ongoing ... However, it continues to post losses and continues to require some support as well as government guarantees,” S&P said.
The agency noted that the government of national unity (GNU) has so far held together, supporting broad policy continuity and a more stable political environment.
In addition, SA’s removal from the Financial Action Task Force’s grey list in October is likely to reduce compliance costs for financial institutions and improve market sentiment.
S&P also noted the announcement in this week’s MTBPS to lower the inflation target to 3%, with a tolerance band of one percentage point on either side.
“Although resulting lower nominal GDP growth could lead to lower nominal revenue collection and constrained real GDP growth due to tighter monetary policy, this is likely to be more than offset by lower borrowing costs and lower inflation-linked expenditures, such as the government wage bill (which are largely consumer price index-linked),” S&P said.
The decision marks a turning point in the country’s credit trajectory, following more than a decade of successive downgrades that began in 2012. However, SA remains in junk territory and will need to sustain reforms to get back to where it once was.
S&P warned the positive outlook could be revised back to stable if progress on economic and governance reforms stalls, leading to weaker growth or larger-than-expected fiscal deficits and interest costs. This risk could materialise, for example, if infrastructure constraints are not adequately addressed.
“Attempts by the populist opposition parties, uMkhonto weSizwe, led by former president Jacob Zuma, and [EFF] to block legislation remain constant, and if the current coalition collapses, less reform-minded parties could possibly join the coalition with the ANC – an outcome preferred by some on the left of the ANC. This could have a detrimental impact on growth and fiscal consolidation, and remains a downside risk,” S&P said.
On the upside, the ratings could be raised again if the government reduces its fiscal shortfalls faster than expected, supported by steady reform progress that strengthens growth and lowers the risk of future bailouts.
The government welcomed the upgrade on Friday night.
“The sovereign credit rating upgrade marks the first upgrade for SA by any of the major credit rating agencies in over 16 years,” it said in a statement, adding that SA is one of just three countries globally to secure an S&P upgrade in 2025, while continuing to maintain a positive outlook after the rating revision.
“Government is improving the health of the public finances and accelerating infrastructure investments. Over the medium term this will strengthen growth prospects, reduce borrowing costs, improve confidence and foster faster job creation.”
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