South Africa holds steady with ’BB-/B’ foreign and ’BB/B’ local currency ratings at S&P

Investing.com -- S&P Global Ratings has affirmed South Africa’s ’BB-/B’ foreign currency and ’BB/B’ local currency ratings with a positive outlook. This confirmation came on May 16, 2025, following an evaluation of the country’s economic performance and fiscal policies.

The ratings agency expects South Africa’s GDP growth to average 1.5% between 2025 and 2028, a slight rise from the subdued 0.6% in 2024. However, the nation’s economic activity may be limited due to ongoing logistical issues and global tariff-related pressures.

The South African government has faced disagreements with coalition partners over increasing the value-added tax (VAT), leading to amendments and re-submissions of the fiscal 2025 budget. Despite these disagreements, the coalition government has remained intact, which S&P believes is promising for policy continuity and reform momentum.

S&P also recognized the nation’s fiscal consolidation efforts, despite the likely removal of VAT. The government benefits from access to deep domestic markets and an actively traded currency, which helps with fiscal financing.

The ratings agency has also affirmed the ’zaAAA’/zaA-1+’ long- and short-term South Africa national scale ratings on South Africa. The positive outlook reflects the potential for stronger growth and government debt consolidation, provided the coalition government can accelerate economic and fiscal reforms while addressing infrastructure pressures.

The ratings could be raised if the government’s reform efforts result in stronger economic growth and reduced government debt. Conversely, the outlook could be revised to stable if economic and governance reforms do not progress, leading to a decline in economic growth or higher-than-expected fiscal financing needs.

The ratings on South Africa are bolstered by the country’s sizable and sophisticated financial system, which provides a deep funding base for the government. The nation’s strong institutions, particularly its central bank, the South African Reserve Bank (SARB), also contribute to its ratings. However, these ratings are constrained by relatively low GDP per capita and growth rates, as well as sizable fiscal deficits and high government debt.

Despite tensions within the coalition government over VAT rates, South Africa has maintained reform momentum. In 2025, the government launched the second phase of "Operation Vulindlela," a program aimed at improving energy and infrastructure and addressing local government issues. The energy sector has seen some success, with a private sector pipeline of energy generation projects totaling almost South African rand (ZAR) 400 billion over the medium term.

The ratings agency expects real GDP growth to pick up slightly to 1.3% this year from 0.6% in fiscal 2024, due to more private sector-driven electricity supply and the absence of last year’s drought. However, potential U.S. tariffs and global tariff-related risks may limit growth.

South Africa’s public debt levels are expected to remain high, averaging 80% of GDP in fiscal 2025-2028. However, the nation’s monetary flexibility, freely floating exchange rate, and deep financial markets are significant credit strengths.

Despite the high levels of debt, South Africa’s deep domestic capital markets and increasing concessional financing from multilateral institutions provide adequate funding sources for the government. The nation’s contingent liabilities are considered significant, with the government having provided guarantees to state-owned enterprises worth ZAR663 billion (8.6% of fiscal 2025 GDP) in fiscal 2025.

S&P forecasts that South Africa’s current account deficit will average 1.3% of GDP over fiscal 2025-2028. The nation’s overall net external creditor position and moderate gross external debt provide buffers against external stress. South Africa’s inflation stood at 4.4% in fiscal 2024 and fell to 3.1% in the first two months of 2025. The SARB’s proactive monetary policy response has slowed consumer price increases, and inflation is expected to remain within the SARB’s 3%-6% target range in fiscal 2025-2028.

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