Ratings agency Moody’s has affirmed its rating on South Africa and kept it on a stable outlook, saying it expects low economic growth and a stable government debt ratio of 80%.
While the country's economic and fiscal performance could prove better than expected if reforms accelerated, it could also fall short or be reversed, the agency said.
“The Ba2 ratings affirmation reflects South Africa's credit strengths from effective, core institutions such as the judiciary and the central bank, a robust, deep financial sector and a solid external position,” Moody’s said in a ratings update late on Tuesday night.
“However, it also acknowledges chronic challenges posed by the country’s extensive inequalities which hamper reform progress and fuel social risk, as well as persistent structural constraints on economic growth, and a relatively high and costly debt.”
Its update comes after rival S&P Global upped its outlook on SA from stable to positive on November 15, citing improved reform and growth potential. However, S&P’s rating on the country is one notch below that of Moody’s, as is that of the third big global ratings agency, Fitch.
Moody’s rating remains at Ba2, which is two notches below investment grade, and it affirmed its “stable” outlook on the rating on Tuesday indicating it sees no reason to change the rating in the near future.
Its update came after the release of surprising economic growth figures on Tuesday that showed the economy had contracted by 0.3% in the third quarter in contrast to market expectation for a 0.4%-0.5% expansion.
This prompted several economists to revise down their growth forecasts for the full year, but some questioned whether the severe drop in agriculture that drove the third-quarter contraction was accurately measured, and suggested the numbers might have to be revised.
Electricity availability has improved, the logistics system is stabilising and the cost of business is declining in some areas of the economy. Government is also transforming the way it prepares and delivers infrastructure projects
— Treasury statement
Moody’s would have compiled its report well before the release of the latest GDP figures. It projects a gradual increase in GDP growth to 1.7% in 2025/26 from 1.1% in 2024 driven by domestic demand, less restrictive monetary policy and continued favourable commodity prices. It expects the energy sector to increasingly drive private investment.
“However, this level of growth is unlikely to significantly reduce unemployment or mitigate social pressures,” it said.
The ratings agency made approving comments about the smooth formation of the government of national unity (GNU) following the May elections and its commitment to continuing structural reforms, saying the GNU’s more inclusive and co-operative approach to governance, along with a more pluralistic political climate, boded well for social cohesion.
The submission of the medium-term budget just three months into the new government was a promising sign. But addressing South Africa's structural weaknesses would take time and would be a significant test for the ruling coalition, it said.
The Treasury welcomed Moody’s acknowledgment that the GNU would pursue structural reforms and ease growth bottlenecks, and said economic reforms were beginning to bear fruit.
“Electricity availability has improved, the logistics system is stabilising and the cost of business is declining in some areas of the economy. Government is also transforming the way it prepares and delivers infrastructure projects,” the Treasury said in a late-night statement on Tuesday.
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