Credit ratings agency Fitch Ratings on Friday upgraded South Africa’s long-term sovereign credit rating by one notch, citing improved fiscal management and a more resilient debt outlook despite sluggish economic growth and persistent structural challenges.
The agency raised South Africa’s long-term foreign-currency issuer default rating to BB from BB-, marking a significant vote of confidence in the government’s efforts to stabilise public finances after years of mounting debt pressures, weak economic performance and repeated external shocks.
In a statement, Fitch said the country’s debt burden had evolved more favourably than anticipated when it downgraded South Africa to BB- in 2020, during a period marked by the economic fallout from the COVID-19 pandemic and rising fiscal risks.
“The upgrade reflects prudent fiscal management,” Fitch said, noting that government debt levels were now expected to remain well below the projections that informed the 2020 downgrade.
The decision represents a milestone for Africa’s most industrialised economy, which has spent more than a decade grappling with low growth, power shortages, high unemployment and rising debt.
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South Africa’s National Treasury welcomed the upgrade, describing it as Fitch’s first positive ratings action on the country in nearly 21 years.
The Treasury said the decision reflected growing confidence in the government’s commitment to maintaining fiscal discipline while advancing reforms aimed at supporting economic growth and improving state institutions.
“This is an important recognition of the progress we have made,” Treasury Director-General Duncan Pieterse said in a statement.
“South Africa still has some way to go to regain its investment-grade credit rating, but for the first time in more than a decade we are seeing a clear turnaround in the downward ratings trend,” Pieterse added.
Despite the upgrade, Fitch cautioned that several factors continued to weigh on South Africa’s credit profile.
The agency highlighted the country’s deep social and economic inequalities, among the highest in the world, as well as a substantial interest burden that consumes a large share of government revenue.
High debt-servicing costs have remained a persistent challenge for policymakers, limiting the resources available for public services and infrastructure investment.
Nevertheless, Fitch pointed to strengths that support the country’s rating, including a favourable government debt structure characterised by long repayment maturities and a debt portfolio largely denominated in local currency.
Such characteristics help reduce refinancing risks and shield public finances from volatility in foreign exchange markets.
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Fitch also projected that government debt would stabilise at around 80 percent of gross domestic product over the next two years.
The agency said this outlook was underpinned by continued primary budget surpluses, stronger tax revenue collection and improving investor sentiment.
The upgrade follows another positive development for South Africa’s credit outlook. Last month, Moody’s Ratings revised the outlook on the country’s Ba2 rating to positive from stable, signalling the possibility of future upgrades if fiscal and economic improvements continue.
Taken together, the actions by Fitch and Moody’s suggest growing confidence among international ratings agencies that South Africa’s fiscal position is becoming more sustainable after years of deterioration.
Government officials have argued that efforts to rein in spending, improve tax administration and implement reforms in key sectors are beginning to yield results.
Earlier this week, Pieterse said South Africa remained on course to meet its fiscal targets despite heightened geopolitical tensions and uncertainty linked to the conflict involving Iran, which has raised concerns about global economic growth and energy markets.
While the Fitch upgrade does not restore South Africa to investment-grade status, analysts say it sends a strong signal to investors that the country’s fiscal trajectory is improving.
The government hopes that continued reforms, stronger economic performance and sustained fiscal discipline will eventually pave the way for further upgrades and a return to investment-grade territory, reducing borrowing costs and supporting long-term growth.
