Fitch Affirms South Africa at ‘BB-‘ with Stable Outlook
Fitch Ratings has affirmed South Africa’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB-‘ with a stable outlook.
According to the rating note, South Africa’s ‘BB-‘ IDR is constrained by low real GDP growth, a high level of poverty and inequality, a high and rising government debt/GDP ratio, and a rigid fiscal structure that hampers budget deficit reduction.
The ratings are supported by a favourable government debt structure with long maturities and mostly local-currency-denominated, strong institutions and a credible monetary policy framework.
Fitch forecasts low real GDP growth of 1.2% in 2025-2027, against 0.5% in 2024. This compares with a projected ‘BB’ median of 3.7% in 2025-27.
Rating analysts said South Africa’s growth is hampered by a slowly recovering logistics sector, weak investment, uncertainty over external trade relations and deeply entrenched structural factors, particularly high levels of inequality, poverty and unemployment.
On the back of a moderate fiscal consolidation, rating analysts forecast a fiscal deficit of 4.8% in the fiscal year ending March 2026 , unchanged from 4.8% in FY24.
“We anticipate a moderation in the wage bill, helped by the implementation of an early-retirement scheme, below-inflation adjusted transfers to state-owned enterprises as well as enhanced tax compliance will contribute to lower fiscal deficits of 4.4% in FY26 and 4.3% in FY27”.
Rating analysts also forecast the FY27 primary surplus to strengthen to 1.3% of GDP, up from 0.5% in FY24.
Fitch stated that South Africa fiscal flexibility is hampered by a rigid fiscal structure, with wages and interest payments representing 48% of total expenditure in FY25 in forecasts amidst high, rising government debt.
Consolidated government debt climbed to 78.1% of GDP in FY24 from 75.1% in FY23. This comprises national government debt of 76.9%, against an initial target of 74.1%, and local government debt of 1.2%.
“We forecast consolidated government debt will continue to rise to 78.5% of GDP in FY25, 79% in FY26 and 79.6% in FY27, well above the 2027 ‘BB’ median of 54%. Debt will accumulate more slowly than in previous years (+3.1pp per year on average in FY22-FY24) in our forecasts, helped by fiscal consolidation efforts, slightly higher nominal GDP growth prospects and government’s plan to drawdown cash balances”.
The government debt structure has long maturities of over 10 years for total debt and a low share of foreign-currency-denominated debt in total debt of 10.4% in FY24, against a ‘BB’ median of 55.2%.
South Africa’s contingent liabilities remain high, with government guarantee exposure to public institutions, independent power producers and public-private partnerships of ZAR674.9 billion in March 2025.
“We expect contingent liabilities to continue to rise, given state freight transport and Logistics Company Transnet’s reliance on guarantees from the sovereign.
The government of national unity (GNU) continues, under Operation Vulindlela 2, to implement a reform agenda.
Reforms focussed on fixing network infrastructures -electricity, logistics, water, digitalisation p have alleviated load shedding and ended the decline in freight volume transported, contributing to our forecast of a modest increase in real GDP growth.
Nevertheless, rating analysts believe these reforms will not materially affect the deeply entrenched structural factors, including poor human capital, low labour participation partly hindered by geospatial fragmentation, and low investment, which drag on growth.
Transnet remains hampered by maintenance backlogs, rolling stock shortages, theft, vandalism and years of mismanagement.
Under the 18-month recovery plan announced in October 2023, rail and container volume rose to 160 million tons (mt) in FY24 from 152mt in FY23, but fell short of the 170mt target.
Transnet continues to accumulate net losses totalling ZAR1.9 billion in FY24 and its financial sustainability is constrained by high leverage.
“We expect Transnet will continue to rely on government guarantees to access funding”. Given the increase in infrastructure expenditure by the central government, we have removed our previous assumption of a ZAR50 billion debt transfer.
Fitch expects headline inflation will rise to 4.2% by end-2025 from 2.9% at end-2024, due to food inflation pressures, and then decline to 3.8% in 2026 and 3.2% in 2027, helped by low core inflation expectations, lower electricity tariff hikes, and forecast of moderate rand appreciation.
In July 2025, The South African Reserve Bank expressed its preference to target the lower end of the 3%-6% to anchor inflation expectations.
“We believe there is still room for rate cuts in 2026 and 2027 under the revised preferred target, but do not expect any further cut this year”.
Rating analysts forecast South Africa’s current account deficit will remain low, at 0.7% of GDP in 2025 from 0.6% in 2024, helped by rising gold export receipts.
“We expect it will moderately rise to 1.1% in 2026 and 1.6% in 2027, on subdued external demand and a stronger currency.
“This will contribute to a moderate decline in international reserves to 4.9 months of current external payments in 2027, from 5.4 months in 2024, in line with the ‘BB’ median of 4.8 months”.
The fully flexible exchange-rate regime, the rand’s high liquidity in international markets, the strong domestic fund-management industry and high share of local currency in government debt help insulate the sovereign from external shocks.
The GNU is holding together after a fractious budget approval process earlier this year. There appears to be broad agreement on key economic priorities and Fitch expects the GNU to stay in place in the near term.
However, relations are fluid between and within the main parties and municipal elections, which have to be held by early 2027, will pose a test, given the likely close contests between the main constituent parties, in Fitch’s view.
Governance, as measured by the World Bank Governance Indicators (WBGI), is broadly in line with the peer median. #Fitch Affirms South Africa at ‘BB-‘ with Stable Outlook NGX Index Shrinks as Equities Investors Lose N81 Billion
