The latest Moody's report estimated that South Africa’s general government debt peaked at 86.8% of GDP in 2025 and would ease gradually to 84.9% by 2028.
Image: LIONEL BONAVENTURE / AFP
In a significant boost for South Africa’s economic prospects, ratings agency Moody’s has expressed optimism that the nation’s debt levels are set to stabilise and gradually decline, thanks to a combination of fiscal consolidation and ongoing economic reforms.
According to Business Report, the agency’s new sovereign credit assessment, released on Thursday, highlights the country's improving fiscal posture and reform momentum as pivotal factors in instilling confidence in a debt burden that has been stress-tested over the years.
Moody’s stated, “South Africa’s improving fiscal performance and steady reform momentum support our view that government debt will stabilise this year before gradually declining.”
This outlook comes hot on the heels of the government’s 2026 Budget announcement, which reinforced its commitment to fiscal discipline. The treasury projects that the general government deficit will narrow from 4.5% to 4.3% of GDP in 2026, with a further drop to 3.8% in 2027.
Key drivers behind this positive assessment include stronger revenue collection efforts, spending restraint, and lower funding costs – all contributing to an enhanced fiscal outlook for the nation. Moody’s anticipates that the primary surplus will rise, while interest burdens will gradually ease, aided by efforts to strengthen fiscal credibility and a shift towards a lower inflation target.
Nonetheless, the agency warns that South Africa's debt levels remain high, exceeding 80% of GDP, thereby constraining the government’s ability to absorb economic shocks.
The report forecasts that government debt peaked at 86.8% of GDP in 2025, with a gradual easing to 84.9% by 2028. National Treasury figures also indicate that nominal debt is set to rise from R6.12 trillion in 2025/26 to R6.94 trillion by 2028/29, a staggering rate of approximately R1.5 billion borrowed per day.
This cautious approach aligns with recent recommendations from the International Monetary Fund (IMF), urging South Africa to adopt clearer fiscal rules and credible debt targets to enhance public finance stability and improve investor sentiment.
Lesetja Kganyago, Governor of the South African Reserve Bank, echoed the sentiment of heightened caution regarding debt sustainability, describing excessive government borrowing as a major risk to global economic stability.
Speaking at the PSG annual conference, Kganyago identified soaring sovereign debt levels as a threat not just for developing nations, but also for established economies. “Government over-indebtedness,” he noted, “has typically been a problem of poorer countries but today the warning lights are also flashing for developed countries.”
Kganyago referenced the rising debt-to-GDP ratios in countries like the United States, now above 120%, as indicative of a broader trend that presents significant risks to economic resilience. He reiterated a critical lesson for South Africa, stating, “We endured large and costly fiscal deterioration after the global financial crisis.” This historical context highlights a resolve towards restoring fiscal credibility as the country embarks on a path of careful fiscal management.
The response from Moody’s recognised the role of the Government of National Unity in upholding fiscal discipline and fostering positive reforms in energy, logistics, and infrastructure. The agency indicated that this coalition governance structure is likely to diminish the likelihood of abrupt shifts towards detrimental policy decisions.
Furthermore, the potential for reforms in energy and logistics sectors could elevate medium-term growth above 2% if these initiatives are sustained. However, both Moody’s and Kganyago agreed that considerable risks remain on the horizon, particularly stemming from geopolitical tensions and fluctuating oil prices linked to unrest in regions like the Middle East.
As a net oil importer, South Africa is particularly vulnerable to the impact of sustained high fuel prices. Despite this, Moody’s expressed confidence in the ability of policymakers to uphold macroeconomic stability in such challenging conditions. Kganyago added that market resilience reflects investors’ increasing recognition of countries with strong policy frameworks: “If we get policy right, we will be rewarded.”
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