Bank of America Securities says South Africa’s “turnaround story” is moving faster than consensus, pencilling in rating upgrades by Moody’s and Fitch by the end of the year as sentiment towards Africa’s most industrialised economy shifts gears after years of underperformance and ballooning public debt.
Bank of America, in a research report, said the 2026 budget, set to be tabled later this month, will serve as a launchpad in convincing Fitch and Moody’s whether to take positive action.
“Ratings have been on an upward trend since 2025, after being flat over 2021-2024 following successive downgrades in 2012-2020. To sustain this momentum, Budget 2026 on February 25 needs to steer the same course as the 2025 MTBPS, in our view.
“This means no new material support for state-owned enterprises [SOEs], a less than 4% of GDP deficit, and close to a 2% primary surplus, ensuring debt starts a downward path. If this is the case, the budget could trigger positive rating actions from Fitch and Moody’s, which have yet to respond since South Africa began its turnaround.
“Our baseline view is that ratings could be upgraded by the end of 2026 to BB+/stable from S&P (local currency back in IG BBB-), BB/stable from Fitch and Ba2/positive from Moody’s.”
S&P Global in November delivered South Africa’s first credit rating upgrade in nearly two decades, raising the country’s foreign-currency long-term sovereign rating to “BB” from “BB-” on stronger growth prospects and an improving fiscal outlook.
Bank of America said data suggests that South Africa should be rated higher.
“Financial markets have rallied. Derived ratings from market-implied credit spreads suggest South Africa is now trading as a BB+, which is higher than all agencies rate it today.”
However, Bank of America said it might take a while yet for South Africa to get back to investment grade, saying how the country manages the outcome of the 2029 elections will be key to whether it gets the most sought-after grade back.
Financial markets have rallied. Derived ratings from market-implied credit spreads suggest South Africa is now trading as a BB+, which is higher than all agencies rate it today.
— Bank of America Securities
South Africa was last on investment-grade status across all major rating agencies until March 2020.
“In our view, returning to investment grade would be difficult in the short term. However, rating upgrades may start looking feasible next year. Our best-case scenario would be two-notch upgrades at Fitch and S&P and one notch at Moody’s within 3-4 years, taking us to the 2029 election.
“Another smooth transition in 2029 could strengthen governance and reform momentum, laying the path for a return to investment grade. Moody’s has become more bearish in Africa relative to peers and is less likely to move fast into investment grade.”
Bank of America listed some of the positives going in South Africa’s favour as being the stabilising energy supply, a lower inflation target and domestic rate-cutting cycle, reducing borrowing costs and moderating SOE risks with Eskom turning a profit.
South Africa’s business leaders last year mounted a co-ordinated push to restore the coveted investment-grade credit rating, making what Standard Bank boss Sim Tshabalala described as “strong, detailed and fact-based arguments in favour of an upgrade” in a recent meeting with ratings agencies.
For the first time in 15 years, South Africa last year delivered back-to-back primary budget surpluses.
US-SA diplomatic tensions are rising as South Africa’s foreign policy increasingly puts it in conflict with the US. Recent comments from South African officials on the arrest of Venezuela’s president may have added to existing strains...
— Bank of America
Standard Bank and Tshabalala have led the charge in calling out ratings agencies for overestimating Africa’s risk profile, which burdens the continent with high debt costs.
A 2023 study by Africa Practice reveals the continent could be losing up to $4.2bn in interest payments on its loans, primarily because of this inflated risk assessment.
Bank of America also weighed in on Pretoria’s frosty relations with Washington, arguing that the geopolitical relations between the two countries are likely to continue.
“US-SA diplomatic tensions are rising as South Africa’s foreign policy increasingly puts it in conflict with the US.
“Recent comments from South African officials on the arrest of Venezuela’s president may have added to existing strains, including South Africa’s case against Israel in the International Court of Justice over the war with Gaza, as well as its close ties with other countries that seemingly are not US allies.
“Recent naval exercises framed by South African officials as routine maritime security operations may also have added to the friction.”
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