Ratings agencies see SA's medim-term growth rebounding above 1.5% on reform momentum

Tawanda Karombo

International ratings agencies expect South Africa’s economic performance to strengthen steadily over the next few years, with projections showing GDP growth rebounding by more than 1.5% between 2026 and 2028.

This comes as S&P Global Ratings upgraded the country’s foreign-currency sovereign rating to BB, citing a more positive outlook for the rand and improved reform momentum.

Moody’s, which maintains a Ba2 stable rating on South Africa, echoed the more upbeat sentiment, saying the country’s debt burden is likely to stabilise “because of high growth” in nominal GDP.

S&P said over the weekend that it expects South Africa’s real GDP growth to rise 1.1% this year after a subdued 0.5% in 2024 before averaging 1.5% over the period 2026-2028.

The agency said the recovery will be driven by ongoing reforms in electricity, logistics, and other network industries supporting growth.

However, S&P’s growth outlook for 2026 and 2027 of 1.2% in each year is more conservative than the National Treasury’s forecasts of 1.5% and 1.8%.

The ratings firm attributes this gap to weaker expectations for gross fixed-capital formation, which it says will “weigh on potential revenue growth and have a denominator impact” on South Africa’s fiscal metrics.

On Friday, S&P raised its foreign currency long-term sovereign credit rating on South Africa for the first time in 17 years to BB from BB- and its local currency long-term sovereign credit rating to BB+ from 'BB, supported by a positive outlook.

“The positive outlook reflects the potential for further improvements in fiscal metrics and government debt stabilization if the coalition government continues its fiscal consolidation,” noted S&P.

“The outlook also reflects the possibility of stronger growth than we currently expect, despite trade- and tariff-related headwinds, if the authorities accelerate economic reforms while addressing infrastructure pressures.”

It noted that “broad reform momentum has picked up pace” after the government launched the second phase of Operation Vulindlela which focuses on reforms in electricity, local government, digital transformation, visa regimes, spatial inequality, water, and logistics.

Momentum Investments’ chief economist, Sanisha Packirisamy, said S&P's upgrade was motivated by the fat that South Africa's growth fundamentals are becoming more stable, particularly the improvement driven by structural reforms most visibly in electricity.

"With improved financial performance and a significantly improved energy supply environment, Eskom is expected to require less support from the government. This has reduced contingent liabilities, which were a long-standing ratings constraint," Packirisamy said.

"But S&P is also candid about our biggest economic constraint, real GDP per capita growth. And so while momentum is improving, South Africa still has considerable ground to make up." 

Moreover, reforms of the State-owned rail and port utility, Transnet, are also ongoing, with 11 private sector operators having been short-listed to assist in the running of rail routes.

However, Transnet “continues to post losses and continues to require some support” as well as government guarantees.

Meanwhile, the National Treasury and the South African Reserve Bank have agreed to lower the inflation target to 3%, a move Fitch Ratings says will strengthen macroeconomic stability and better align South Africa with its global trading partners.

However, Fitch warned that lower inflation will also reduce nominal GDP and revenue growth, potentially limiting fiscal gains.

“We believe the inflation target change will enhance macroeconomic stability, aligning South Africa’s inflation more closely with that of its trading partners and alleviating structural downward pressures on the currency,” said Fitch on Friday.

Despite the progress, S&P cautioned that South Africa’s ratings remain constrained by low per-capita income, weak growth, sizeable deficits and high public-debt levels.

Nonetheless, it acknowledged that the Government of National Unity has injected reformist energy into policy direction, with commitments to faster growth, improved service delivery and business-friendly reforms.

S&P has forecast South Africa’s government deficit to be slightly higher at 4.7% of GDP in 2025 and average 3.5% of GDP in 2026-2028, while the change in general government debt will average 4.1% of GDP over 2025-2028.

It, however, believes that South Africa is committed to achieving primary surpluses and fiscal consolidation.

North West University's Business School economist, Prof Raymond Parsons, said the S&P decision has now opened the way for SA to eventually extricate itself from its current junk status, but there remains a long way to go.

"To regain full global investment status still requires that SA’s economic steersmanship stays firmly on track over the next few years. Weaker growth would jeopardise the planned fiscal trajectory," Parsons said.

"Successful implementation of growth-friendly policies therefore remains the key - by ensuring that reform commitments will continue to be translated into tangible outcomes in confidence, stability, investment, jobs and service delivery." 

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