Credit rating agency Moody’s Ratings said South Africa’s fiscal position is improving and government debt is expected to stabilise this year before gradually declining, supported by stronger revenue collection and ongoing economic reforms.
In a report released Wednesday, Moody’s said improved fiscal performance, spending discipline and easing funding pressures were helping to strengthen the outlook for South Africa, though high debt levels remain a constraint.
The agency currently rates South Africa at Ba2 with a stable outlook.
Moody’s said government debt likely peaked at 86.8 percent of gross domestic product in 2025 and is expected to decline gradually to about 84.9 percent by 2028.
It noted that although the trajectory is improving, debt levels above 80 percent of GDP continue to limit the government’s ability to respond to economic shocks.
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The report projected that South Africa’s budget deficit would narrow to 4.3 percent of GDP in 2026 and 3.8 percent in 2027, compared with 4.5 percent in 2025.
Moody’s said the improvement would be driven by better tax revenue performance, tighter expenditure controls and gradually improving financing conditions.
Interest payments remain a key pressure point, accounting for 18.8 percent of government revenue in 2025, a level Moody’s said is higher than many similarly rated sovereign peers.
However, the agency said recent policy shifts, including the country’s move toward a lower inflation target of 3 percent with a 1 percentage point tolerance band, could help reduce borrowing costs over time.
Lower inflation, Moody’s said, is likely to ease risk premiums and improve investor confidence in government debt instruments.
The report also pointed to modest but steady economic recovery, with real GDP growth expected to rise gradually to around 2 percent by 2028, up from just 0.5 percent in 2024.
Growth, it said, would be supported by stronger investment activity and resilient consumer spending.
Moody’s added that structural reforms in key sectors such as electricity, logistics and water infrastructure could lift South Africa’s medium-term growth potential above 2 percent if implemented effectively.
The country has faced persistent infrastructure bottlenecks, particularly in power supply and freight transport, which have weighed heavily on industrial output and investor sentiment.
Recent government reforms aimed at opening parts of the energy and logistics sectors to private participation are seen as central to improving long-term growth prospects.
Moody’s also said political risks remain manageable, despite the upcoming 2027–2029 electoral cycle, which could test the durability of ongoing reforms.
Its baseline scenario assumes that the current Government of National Unity will remain intact through its term, with major political parties prioritising stability ahead of the 2029 general election.
Analysts say South Africa’s improving fiscal outlook reflects a delicate balance between reform momentum and longstanding structural challenges, including unemployment, weak growth and high public debt.
While the trajectory is improving, Moody’s warned that sustained implementation of reforms will be critical to maintaining investor confidence and ensuring continued fiscal consolidation.
