South Africa's ratings stuck in 'junk' despite investor optimism

South Africa will be unable to shed its “junk” credit rating for years to come, credit analysts said, despite investor optimism over the economic trajectory since the formation of a government of national unity (GNU) this year.

S&P Global is scheduled to review the country's sovereign rating on Friday, though the agency has its long-term foreign currency rating three notches into subinvestment grade at "BB-", with a stable outlook.

Eight months of uninterrupted power supply after years of blackouts and the promise of faster economic reform under the GNU has boosted business confidence, but fiscal risks remain and it will be a while before economists can gauge the new government's success at accelerating growth.

“That discussion about investment grade is still a distant one. We're still far from that,” Tatonga Rusike, sub-Saharan Africa economist at Bank of America Securities, said in an interview.

For S&P or the other two big agencies, Moody's and Fitch, to move to a positive outlook — a sign that an upgrade may follow soon — would require evidence of much faster growth and progress stabilising public debt, analysts said.

Fitch also has South Africa's long-term foreign rating three notches into subinvestment grade at "BB-", with a stable outlook. It has completed its 2024 reviews and last week raised doubts over the government's ability to meet some of the targets it set in October's mid-term budget.

Moody's has South Africa two notches into subinvestment grade at "Ba2", with a stable outlook.

“There are still big risks, at the same time, to the outlook for public finances,” said Miyelani Maluleke, head of South Africa macroeconomics research at Absa.

South Africa's growth forecasts still lag behind those for many emerging market peers, with the government expecting growth of just 1.1% this year.

Analysts said sustained economic growth of about 2% and evidence that debt was stabilising could prompt a move to a positive outlook in the first half of 2025.

Debt as a share of GDP jumped from 23.6% in 2009 to 74.1% this year and the government said last month it aimed for it to peak at 75.5% in 2026.

“They [the ratings agencies] want to see evidence that the changes are delivered in improved economic performance,” Absa's Maluleke said.