Fitch Upgrades South Africa to ‘BB’ With Stable Outlook
Fitch Ratings has upgraded South Africa’s Long-Term Issuer Default Ratings (IDRs) to ‘BB’ from ‘BB-‘ with an outlook accorded as stable.
In its rating note released on Friday, Fitch said the upgrade primarily reflects South Africa’s record of prudent fiscal management and progress on fiscal consolidation, despite weak economic growth and domestic and external shocks.
Together with gross domestic product (GDP) revisions, this leaves debt/GDP well below levels anticipated when we downgraded it to ‘BB-‘ in 2020, the rating note stated.
But Fitch said South Africa’s ‘BB’ IDR is constrained by low real GDP growth, high poverty and inequality, a high debt/GDP ratio, and a high interest/revenue ratio.
It added that the ratings are supported by a favourable government debt structure with long maturities and mostly denominated in local currency, strong institutions and a credible monetary policy framework.
Explaining the country’s key rating drivers, Fitch said South Africa has achieved fiscal primary surpluses of 1% of GDP on average over the last four years.
This represents a shift compared with the average 0.6%-of-GDP fiscal primary deficit from the fiscal year ending in March 2012 (FY11) to FY19 and highlights South Africa’s recent record of fiscal prudence, particularly in a context of low real GDP growth.
Supply-side constraints on economic activity, particularly the energy and logistics sectors that dragged on growth in recent years, have eased with the implementation of structural reforms, which should enable growth to moderately increase in the next years.
“We forecast continued primary surpluses, combined with slightly stronger growth, will enable debt/GDP to be well below levels anticipated at the time of the last downgrade”.
Ratings analysts anticipate debt/GDP will stabilise over the next two years at around 80% of GDP (including local government debt), well above the 2027 ‘BB’ median of 53%.
Fitch expressed that debt stabilisation is due to improved fiscal performance and stock-flow adjustments with drawdowns on deposits and lower discounts at issuance, the latter reflecting improved market sentiment.
Unlike the government, Fitch rating analysts said they expect debt/GDP to rise again from FY28 at a moderate pace, primarily due to low real GDP growth.
“We anticipate continued strong revenue collection and contained primary expenditure will contribute to the consolidated primary fiscal surplus widening to 1.7% of GDP in FY27, from an estimated 1.2% in FY25”.
Combined with stable interest payments/GDP, Fitch hinted that this will lower the consolidated fiscal deficit to 3.8% in FY27, still above the ‘BB’ median of 3.1%.
Ratings analysts explained that lower real-terms transfers to local governments and households, combined with efforts to verify the eligibility of beneficiaries will lower transfers.
The implementation of the wage agreement that caps FY26 wage increases at 4% (even if actual inflation is higher), and a public sector early retirement scheme will restrain the wage bill.
Revenue could surprise to the upside, due to high commodity prices that proved to be significantly fiscal revenue-generating in past booms.
Fitch forecasts real GDP growth will remain low but increase slightly from an average of 0.7% in 2023-2024 and 1.1% in 2025 to 1.4% in 2027, against a ‘BB’ median of 4%.
Investment dragged on growth in 2024 and 2025, but analysts expect capital formation to support growth due to increased business confidence.
The rating note said South African economic activity is hampered by a slowly recovering logistics sector, still weak investment, and deeply entrenched structural factors, particularly high inequality and low labour participation.
South Africa’s interest/revenue ratio remains high, at 19% in 2027 against a ‘BB’ median of 11%.
“We expect explicit contingent liabilities, at 9.1% of FY25 GDP, to remain high given state freight transport and logistics company Transnet’s reliance on guarantees from the sovereign, but we estimate the risk of explicit and implicit guarantees being called has lowered due to the improved financial performance of key state-owned enterprises”.
The long average maturity of total government debt of over 10 years and the low share of foreign-currency-denominated debt in total debt of 8.9% in FY25, against a ‘BB’ median of 52.3%, are rating strengths.
The country’s domestic financial sector maintains robust capital, liquidity and profitability ratios. The non-bank financial institutions sector is the largest among G20 emerging economies, with assets of about 183% of GDP at end-2023 and provides financing flexibility.
Ratings analysts believe President Ramaphosa will remain in office, despite an impeachment committee set up in May 2026 as they expect the ANC (40% of seats in Parliament) will remain supportive of the President.
Fitch said tensions within the ANC and the government of national unity (GNU) are likely to increase, with November 2026 municipal elections being a pressure point, but it expects the GNU to hold together for its full term.
The war in the Middle East will lift inflation, but fiscal effects are contained so far. South Africa has temporarily lowered fuel levies until end-June 2026, the rating note added.
The government estimates total foregone revenue for the planned 2.5 months of lower levies is 0.2% of GDP. “We believe this will be offset by stronger-than-budgeted corporate income tax collection and mineral royalties due to high commodity prices and strong mining companies’ profitability”.
Fitch expects headline inflation of 4.5% at end-2026, above the South Africa Reserve Bank’s (SARB) new inflation target of 3% plus or minus1pp, due to higher fuel prices and their impact on core inflation.
Inflation will return to the target range in 2027. SARB increased its policy rate by 25bp in May 2026 and we anticipate another 25bp hike later this year.
“ We forecast South Africa’s current account deficit will remain low, averaging 0.6% of GDP through 2027, as the impact of high oil prices will be offset by high platinum group metals and gold prices:, Fitch said.
Ratings analysts stated that this will enable SARB’s international reserves to remain above 5.5 months of current external payments, against a forecast 2027 ‘BB’ median of 4.8 months. NGX Rebounds as Zenith Bank, Access Drive Banking Index Surge
