Africa-Press – South-Africa. There are substantial risks to South Africa’s government finances, which could see the country’s credit rating fall even deeper into ‘junk status’.
This year’s commodity rally has not substantially boosted government revenue, which could hamper the government’s plans to run a fiscal surplus and stabilise the country’s debt.
Concerningly, rating agencies do not expect South Africa’s debt to stabilise in the coming years, threatening to plunge the country’s credit rating even further.
Rating agency Fitch recently left South Africa’s rating unchanged at BB-. A rating of BB- is considered “non-investment-grade”, colloquially known as “junk status”, as it indicates a higher risk of the issuer defaulting on their debt.
South Africa has been stuck at junk status for over a decade, with credit rating agencies pointing to a lack of growth and fiscal discipline as key inhibitors to an upgrade.
GCR senior analyst Patricia Zvarayi said in a presentation in August this year that there was scope for an upgrade when the Government of National Unity (GNU) came into power.
She said some credit rating agencies saw the formation of the GNU as a sign of South Africa’s commitment to fiscal rigour and reform.
However, these hopes have largely been dashed as South Africa’s short-term growth expectations have fallen behind already modest expectations.
Zvarayi said this implies that a ratings uplift for South Africa may be delayed beyond the agencies’ 2026 reviews.
Fitch confirmed as much in its latest review, saying further significant increases in the government’s debt-to-GDP, for example, could see a downgrade in South Africa’s credit rating.
Despite the National Treasury’s plans to stablise South Africa’s debt-to-GDP ratio in the 2025/26 fiscal year, Fitch does not expect this to happen. In fact, the agency expects the ratio to reach nearly 80% by the 2027 fiscal year.
The graph below, courtesy of Zvarayi, shows South Africa’s credit rating movements since 2000.
Dark clouds and silver linings
The government’s immense debt burden has been a major concern for South Africa for over a decade, as the country’s debt remains high and increasing while GDP growth has been slow.
This has placed immense pressure on the national fiscus, as debt servicing costs have increased to the point where the government now spends around R1.2 billion a day.
In its 2025 Budget presented in May, the National Treasury presented its plans to address this problem by achieving a primary budget surplus, which means the government’s revenue outpaces non-interest spending.
Doing this year after year will allow the government to chip away at its debt burden and, particularly when coupled with faster economic growth, stabilise the country’s debt.
With this plan, the Treasury projected that South Africa’s government debt will stabilise at 77.4% of GDP from 78.1% in the 2024 financial year.
However, Fitch projected that South Africa’s debt-to-GDP ratio will continue to grow over the next three years, to 78.5% in FY25, 79% in FY26 and 79.6% in FY27.
Investec chief economist Annabel Bishop explained that substantial risks to South Africa’s state finances remain, as the very narrow commodity rally seen in 2025 has not substantially boosted government revenue, which is only marginally up so far this fiscal year.
However, there are some silver linings in South Africa’s fiscal fortunes, as expenditure is substantially lower compared last year.
Zvarayi also said there is scope for upward migration from South Africa’s current BB- rating in the intermediate term.
She said factors supporting this upside include sustained reforms, a commitment to austerity, and fiscal stimulus for the tax revenue base.
“South Africa’s economic strength assessment could anchor stronger ratings in the intermediate/medium term on the back of fiscal prudence and strong policy direction, especially when compared to smaller regional economies,” she said.
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