Moody’s Ratings has left South Africa’s credit rating unchanged at Ba2 with a stable outlook following its latest periodic review, despite some market expectations of a potential shift to a positive outlook.
While the ratings agency refrained from taking any formal action, it offered a cautious assessment of the country’s progress on reform, noting both encouraging signs of resilience and stubborn structural weaknesses.
The review came after S&P Global Ratings last month upgraded South Africa’s foreign currency rating from BB- to BB, while also raising its outlook to positive. Fitch, meanwhile, remains more cautious, holding its BB- rating with a stable outlook — one notch below both Moody’s and S&P.
Moody’s pointed to longstanding bottlenecks, such as ageing infrastructure, a weak labour market and persistent inequality, as the major headwinds to stronger economic performance. These factors, the agency warned, continue to “complicate policy efforts and fuel social tension”.
However, there were glimmers of progress. In 2025, South Africa’s economy showed signs of recovery. Improvements in electricity supply and more stable operations at ports and railways boosted output in critical sectors, including platinum group metals, gold, chromium, automotive, and chemicals.
The agency expects this momentum to be supported by a gradual increase in investment, driven by structural reforms in the energy and logistics sectors. Nevertheless, external risks, such as geopolitical tension, trade disputes, and domestic political uncertainty, continue to cloud the outlook.
Moody’s assessed South Africa’s institutions and governance strength at “baa2”, citing robust core institutions such as the central bank and the judiciary. The country also benefits from a sound macroeconomic framework and a demonstrated commitment to fiscal discipline — though these are balanced against the drag of pervasive corruption.
Moody’s noted that inflation expectations are already gravitating toward the new 3% inflation target, a move that should, over time, help lower inflation risk premia and domestic borrowing costs — ultimately supporting fiscal consolidation, investment and real economic growth.
“We expect the output cost of re-anchoring inflation expectations to be limited given already high real interest rates and the [Reserve Bank’s] demonstrated credibility, even as tighter monetary policy will likely exert a modest drag on economic activity in the near term,” the agency said.
In its medium-term budget policy statement (MTBPS) tabled in November, the Treasury reaffirmed its commitment to fiscal consolidation, forecasting a narrower fiscal deficit of 4.5% of GDP in the 2025 financial year and 3.6% in 2026. Moody’s projects the 2025 deficit at 4.1%, citing unanticipated spending pressures, especially on interest costs.
The agency expects South Africa’s public debt burden to rise to about 87% of GDP in 2025, up from 83% in the previous year. A major contributor is the government’s provision of fresh guarantees to Transnet, whose deteriorating finances now factor directly into Moody’s debt definition.
Still, there was a silver lining: fiscal risks posed by state-owned entities (SOEs) “have diminished”, Moody’s said.
Moody’s expects South Africa’s growth to gradually accelerate, potentially reaching 1.8% by 2027, underpinned by reform progress and improved infrastructure performance. The agency’s stable outlook reflects expectations that while debt levels will remain elevated, they are likely to stabilise.
“Despite coalition frictions, we expect the government to ultimately reach compromises that allow key legislation to pass,” Moody’s said.
The agency assumes a continuation of gradual fiscal consolidation through primary surpluses and a steady reduction in contingent liability risks from state-owned enterprises, though it warns these improvements depend on reform progress.
What could move the dial
Moody’s said it could upgrade South Africa’s rating if growth outpaces expectations and leads to “a material reduction” in the debt burden. It said this would likely require clear, sustained operational and financial improvements in the energy and logistics sectors, and a significant and lasting rise in investment, especially in key network industries where the government is seeking greater private-sector participation.
Moody’s said a downgrade could follow if South Africa’s already subdued growth prospects were to deteriorate further, weakening fiscal strength.
This risk could arise from stalled structural reforms — particularly if entrenched coalition divisions hinder the government’s ability to pass legislation.
A shift in the governing coalition toward parties promoting credit-negative policies, such as nationalising key sectors, would also damage institutional strength and deter investment.
Additionally, if the financial needs of state-owned enterprises exceed current expectations, this too would weigh negatively on the rating.