Moody’s Ratings has offered a cautiously constructive assessment of South Africa’s fiscal trajectory, saying that improving revenue collection, spending restraint and declining funding costs should help government debt stabilise this year before beginning a gradual decline.
In a report published on Wednesday, Moody’s said stronger revenue performance and reform momentum supported a credit-positive shift in the country’s outlook. The agency forecast South Africa’s general government deficit would narrow to 4.3% of GDP in 2026 and 3.8% in 2027, from 4.5% in 2025.
The backdrop remains challenging. Government debt has exceeded 80% of GDP, a level that Moody’s said continues to constrain the government’s financial flexibility. Interest payments consumed 18.8% of general government revenue in 2025 — a ratio weaker than many similarly rated peers. South Africa currently carries a Ba2 sovereign rating from Moody’s with a stable outlook, leaving it two notches below investment grade.
The agency noted South Africa’s decision to shift to a lower inflation target of 3%, with a one percentage point tolerance band, as a measure likely to reduce risk premia and lower borrowing costs over time. Real GDP growth is expected to rise gradually towards 2% by 2028 from 0.5% in 2024, supported by higher investment and resilient consumption.
READ – S&P Upgrades South African Banks and Insurers In Credit Surge
Moody’s said that sustained reforms in the electricity, logistics and water sectors could lift medium-term growth potential above 2% and attract private investment. The ratings agency said its baseline assumption was for the Government of National Unity to hold through its term, with both the ANC and Democratic Alliance having an interest in preserving stability ahead of the 2029 general election. The 2027-2029 electoral cycle was identified as a test of reform durability, though the risk of a sharp policy reversal was described as limited.
The report arrives against a broader backdrop of international scrutiny of South Africa’s credit profile. In a separate development earlier this month, Moody’s surrendered its South African credit rating licence after 32 years of operation in the country, with its pan-African subsidiary GCR expected to fill the domestic ratings gap. That structural change underscores the shifting landscape for sovereign credit assessment across the continent.
South Africa’s reform programme has gathered some pace under the GNU, with load shedding having been largely resolved in 2024 and ongoing efforts to rehabilitate the Transnet rail and port network. Investors, however, continue to watch for evidence that structural improvements in electricity and logistics translate into durable economic acceleration.