SA’s first credit rating upgrade by a major agency in years has been broadly welcomed by economists and policy experts as a sign of growing international confidence in the country’s fiscal and reform trajectory.

However, they caution that the path back to investment grade remains long and heavily dependent on consistent execution.

Ratings agency S&P Global lifted SA’s long-term foreign currency rating to BB from double B minus on Friday — the first upgrade in two decades — aligning its assessment with that of Moody’s and moving the country two notches below investment grade.

It also raised the local currency rating to BB+, while affirming a positive outlook, suggesting another upgrade is possible if momentum is sustained.

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North-West University Business School economist Raymond Parsons said the upgrade was “welcome news” that recognised the extent to which recent fiscal and growth improvements had strengthened investment sentiment.

“The S&P decision has now opened the way for SA to eventually extricate itself from its current junk status,” he said. “But there remains a long way to go. To regain full global investment status still requires that SA’s economic steersmanship stays firmly on track over the next few years.”

Parsons warned that weaker growth could jeopardise fiscal progress, stressing that the implementation of “growth-friendly policies” would be critical — “by ensuring that reform commitments will continue to be translated into tangible outcomes in confidence, stability, investment, jobs and service delivery”.

“When reforms take root, credibility strengthens, investment follows and momentum begins to compound,” outgoing JSE Group CEO Leila Fourie said.

“This progress indicates that the reform path is credible, that institutions are strengthening and that the macroeconomic framework is sound. This point of inflection supports SA’s position at a moment when the world has its eyes focused [on] our country,” Fourie said.

Positive outlook

Stanlib chief economist Kevin Lings said that while the upgrade itself was significant, the retention of the positive outlook was perhaps the most encouraging element.

S&P said the positive outlook reflected the potential for further improvements in fiscal metrics and debt stabilisation if the coalition government continued to consolidate the fiscus and push ahead with reforms. The outlook also leaves the door open to stronger-than-expected growth, despite global headwinds such as trade tensions and tariffs.

“Overall, the decision by S&P to upgrade SA’s credit rating is very good news and should further support the rally in SA’s bond market as well as the exchange rate. Though numerous economic and financial challenges must be overcome before SA is in a position to regain an investment-grade credit rating, especially a sustainably higher rate of economic growth,” Lings said.

The upgrade was supported by a combination of improved growth prospects, stronger public finances and structural reforms gaining traction. S&P expects SA’s GDP growth to rise to 1.1% in 2025 and to average 1.5% in 2026-28 “as reforms to electricity and other sectors support growth”.

Revenue collection has outperformed budget targets and, alongside restrained expenditure, this is helping the government maintain primary budget surpluses.

Contingent liabilities are also expected to decline, with Eskom posting its first profit in eight years and requiring less financial support from the state. Reform momentum has accelerated under the second phase of Operation Vulindlela.

The agency noted that the government of national unity (GNU) had so far held together, supporting broad policy continuity and a more stable political environment.

In addition, SA’s removal from the Financial Action Task Force’s greylist in October was likely to reduce compliance costs for financial institutions and improve market sentiment.

S&P also noted the announcement in this week’s medium-term budget policy statement to lower the inflation target to 3%, with a tolerance band of one percentage point on either side.

“Though resulting lower nominal GDP growth could lead to lower nominal revenue collection and constrained real GDP growth due to tighter monetary policy, this is likely to be more than offset by lower borrowing costs and lower inflation-linked expenditures, such as the government wage bill (which is largely consumer price index-linked),” S&P said.

Risks flagged by S&P included governance backsliding, political instability and infrastructure bottlenecks — especially in logistics. The agency also highlighted ongoing losses at Transnet and warned that any weakening of the reform drive could put the outlook at risk.

“Attempts by the populist opposition parties, uMkhonto weSizwe, led by former president Jacob Zuma, and [EFF] to block legislation remain constant and if the current coalition collapses, less reform-minded parties could possibly join the coalition with the ANC — an outcome preferred by some on the left of the ANC. This could have a detrimental impact on growth and fiscal consolidation and remains a downside risk,” S&P said.

Treasury officials said the upgrade placed SA among three countries globally to have secured an S&P upgrade in 2025 while continuing to maintain a positive outlook after the rating revision.

“The government is improving the health of the public finances and accelerating infrastructure investments. Over the medium term this will strengthen growth prospects, reduce borrowing costs, improve confidence and foster faster job creation,” they said in a statement.

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