S&P signals possible South Africa ratings upgrade within a year

Tawanda Karombo

S&P Global Ratings could raise South Africa’s sovereign credit rating within the next year if fiscal imbalances improve and reform momentum is sustained, the ratings agency told Business Report exclusively on Thursday.

In its most recent action, S&P upgraded South Africa’s foreign currency rating to BB and affirmed its local currency rating at BB+, assigning both a positive outlook. This places the country just one notch below investment grade.

The ratings agency has now indicated that it intends to resolve the positive outlook “broadly within a year”, opening the door to a potential upgrade that could further enhance South Africa’s appeal to international investors.

“We could raise the ratings if fiscal imbalances reduce more significantly than we currently expect, supported by an improving track record of effective reforms that further strengthen economic growth and reduce contingent liabilities,” said Ravi Bhatia, S&P’s lead analyst on South Africa.

A potential upgrade would come amid growing optimism that South Africa’s growth and fiscal trajectory is improving from a low base.

S&P said revenue performance has strengthened, with the country expected to post a primary budget surplus for the third consecutive year in 2025.

“Revenue performance has also improved, with the 2025 expected to run primary surpluses for the third year in a row,” Bhatia explained. “This should support the fiscal trajectory.” 

In its ratings review in November, S&P pointed to accelerating reform momentum, particularly under the second phase of Operation Vulindlela launched in 2025. The programme targets structural reforms in local government, electricity, water, logistics, digital transformation and spatial inequality.

Investec chief economist, Annabel Bishop, said the positive outlook on the current ratings SA has from S&P does indeed signal that a further credit rating will occur in up to around 18 months’ time.

However, Bishop said the upgrade would be contingent on South Africa meeting S&P’s objectives.

"The rating agency will in particular be looking for a drop in the debt to GDP projections, driven by higher revenue and/or lower expenditure than expected, supporting the budget deficit to lessen in order to grant a further upgrade," Bishop said.

"Based on our expected case forecasts, there is a possibility it could happen in 2027, potentially in in the second half of 2027, although this is not our central view yet but rather the up case."

In the logistics sector, improvements are already becoming evident. Richards Bay Terminal reported this week that export volumes in 2025 increased after Transnet began addressing longstanding constraints on the coal export rail line.

The electricity sector has also seen notable reforms, with a sharp reduction in load shedding as generation capacity improves. However, concerns remain within the mining industry, where persistently high energy costs could force the closure of additional furnaces.

S&P further noted that South Africa’s removal from the Financial Action Task Force (FATF) grey list reflects improved transparency and governance standards.

Nolan Wapenaar, co-chief investment officer at Anchor, however, said this was plausible, a lot needed to go right for a South Africa.  

"Specifically we will need to see credible evidence of debt levels coming down and this being sustainable even where the commodity cycle turns more negative. We will also need to see credible evidence of State Owned Enterprises being more effective in delivering on their mandates," Wapenaar said.

"While much of the decline has been arrested, we are not seeing massive positive trends yet. Anchor is of the view that a further upgrade is a reasonable expectation, though investment grade status is a stretch at this stage."  

Meanwhile, North West University's Business School economist, Prof. Raymond Parsons, said the possibility that South Africa may see another credit rating upgrade from S&P this year would add to the cumulative impact of several other recent positive developments that have already strengthened the country's investment profile.

"Boosting investor confidence remains the key to higher job-rich growth," Parsons said.

"Promoting this outcome will continue to require tangible evidence that South Africa will accelerate its modest economic recovery and hasten the implementation of growth-friendly economic reforms. Better future investment grades will remain performance-driven." 

BUSINESS REPORT