Moody’s Ratings said South Africa is on track for its first credit rating upgrade from the agency since 2009. It said this depends on the country’s public finances continuing to get better.
Moody’s rates South Africa at Ba2, which is two steps below investment grade. In May, the agency changed the country’s outlook from stable to positive.
“We could upgrade South Africa’s rating if fiscal performance continues to improve,” Evan Wohlmann, a vice president at Moody’s, told a virtual media briefing on Tuesday.
Wohlmann said any decision would depend on how confident the agency is about where the country’s credit profile is heading. Moody’s said South Africa has reached a turning point after it stabilised its debt and made reforms to support growth.
According to Wohlmann, the agency expects government debt to slowly fall. Debt peaked at 87% of gross domestic product in the last financial year. Moody’s expects it to drop to 84% of GDP by the end of the decade, helped by stronger economic output.
Finance Minister Enoch Godongwana will deliver his mid-term budget review on 21 October. He is expected to show that the primary budget surplus is still growing as income rises. This surplus measures how much revenue is left after spending that is not interest on debt.
South Africa’s economy has grown by less than 1% a year on average over the past ten years. Reforms are starting to show results, according to Moneyweb. Nedbank Group expects growth to rise to 1.9% over the next two years, with 2.5% possible by 2030.
The country holds municipal elections on 4 November. The ANC may lose more support in those polls. This could put pressure on President Cyril Ramaphosa, who is due to step down as party leader at the end of next year.
Moody’s said it sees a low risk that politics will push South Africa off its reform path. General elections are due in 2029.
“We see the risk of a reversal in policy from the forthcoming electoral cycle as limited,” Wohlmann said. He pointed to the move to a coalition government in 2024, after the ANC lost its majority in Parliament.
The ANC lost that majority amid public anger over high unemployment and poor service delivery.
Moody’s records show that it upgrades about 60% of the countries it places on a positive outlook.
Getting back to investment grade may still take time. Moody’s first downgraded South Africa in 2012, cutting it from Baa1 to Baa2. It took eight more years before the rating fell below investment grade in 2020.
Lucia Villa, Moody’s senior vice president for ratings, said past cases show a pattern. She said downgrade cycles have, on average, about twice as many yearly rating cuts as upgrade cycles have upgrades.
Source: this article is based on reporting by Moneyweb. Image: Moneyweb. Written with the help of AI and published by the Tzaneen Voice Business desk. See our Editorial Standards.
Anelisa Nkuna covers business and money news for Tzaneen Voice. Anelisa reports on the rand, fuel prices, interest rates, jobs, Eskom, Transnet, farming and company results. The aim is simple: explain what the numbers mean for household budgets, small businesses and workers in South Africa.