S&P Global says it is on track to maintain its rating for South Africa at BB for foreign currency and BB+ for local currency, with a positive outlook, but this could change by its May 29 update, depending on how the Middle East war affects the country’s economic metrics.
S&P upgraded the country’s rating in November 2025, the first time in two decades, citing stronger-than-expected tax revenue, primary budget surpluses and reduced risks linked to Eskom and other state-owned entities.
The move came after the Financial Action Task Force — the global watchdog that sets global standards to combat money-laundering and the financing of terrorism — removed South Africa from its greylist of countries that have weaknesses in this regard and are working to fix them.
But after entering 2026 on a positive note, the country’s outlook for the year has turned more uncertain after the US and Israel attacked Iran in late February, triggering global market turmoil that has hit net oil importers such as South Africa particularly hard.
“The war in Iran does have some impact on the South African economy and the pass-through channels here could be seen through the import bill,” S&P Global South Africa lead Samira Mensah said in an interview with Business Day on Monday.
“The downside risk for South Africa, the current outlook reflects, is that we could go back to a stable outlook if the growth prospects are not commensurate with our expectations that would support, in turn, the fiscal metrics and debt service costs. All of these things had started to improve at the end of 2025.”
In its February Budget Review, the National Treasury forecast gross loan debt to stabilise at 78.9% of GDP this year before easing for the rest of the decade, reducing servicing costs over the medium term and supporting spending on public services.
Finance minister Enoch Godongwana predicted economic growth of 1.6% for 2026, which would have been an improvement over last year’s outcome of 1.1%.
Those forecasts are now under threat from the Middle East conflict, with the South African Reserve Bank also flagging upside risks to the inflation outlook at its policy meeting in March, when it kept its benchmark repurchase rate at 6.75%, having been expected at the start of the year to cut it at least once in 2026.
“South Africa is a net importer of oil. It’s also an open economy with a capital market and a currency that is used as a proxy for emerging market sentiment because of the depth of the capital market in South Africa,” Mensah said.
“For growth, the base case is 1.5% GDP [for 2026], 1.7% for 2027 and the downside scenario would be no growth in 2026 and less than 1% in 2027.”
Inflation as a base case is 3.5% for 2026 and 3.6% for 2027 “and the downside would be to see an additional 2.3 percentage points of inflation for South Africa in 2026. That means it could be closer to the 5.8% mark or 6%.”
The Reserve Bank now targets 3% for consumer inflation after abandoning its previous 3%-6% band last year.
The risk of inflation emanating largely from steeper fuel prices could have a knock-on effect on GDP growth as well as the country’s fiscal and debt metrics.
“All in all, we could have essentially slightly slower growth. How it could translate into the credit ratings could be either we go back to a stable outlook at the similar rating level or we keep it as such, waiting for the war in Iran to sort of settle at a more manageable, predictable level, where we have more interpretation … of next steps,” Mensah said.
S&P Global is basing its assumption on the base case that the Strait of Hormuz, a global trade passage that has been shut for much of the war, starts reopening by end-April.
“But we revise those almost on a weekly basis because of everything that is happening. So, yes, not normalcy, but certainly a moderation … not of the conflict, but certainly of what has been agreed upon,” Mensah said.
“The return to normal of the production of oil and gas in the Middle East will take slightly longer, a few months in our base case, because restarting oil and gas production takes slightly longer. There are also infrastructure repairs that need to be done in some cases. The supply chain disruption is to be reckoned with in this case.
“And it always takes a little bit more time to turn things around … we are saying three months. It could be slightly longer, of course, but with a sort of normalisation before the end of the year. That’s the base-case scenario.
“The worst case, the downside risk, is to see a prolonged war in Iran with the risk of escalation to the broader region, with knock-on effects on their own economies but also on global economies. Certainly, for emerging markets and an economy like South Africa, it could certainly affect economic growth.”
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