South Africa must grow its economy faster and manage its public finances better if it hopes to receive its first credit rating upgrade in over 20 years, according to S&P Global Ratings. This was made known by Ravi Bhatia, the director and lead analyst at S&P, during the agency’s annual South Africa conference held in Johannesburg on Wednesday.
In its most recent review last month, S&P Global affirmed South Africa’s long-term foreign currency credit rating at BB-/B, which is below investment grade, but kept a “positive” outlook. This “positive” rating means the agency sees a possible upgrade in the near future if certain conditions are met.
S&P first gave South Africa this positive outlook in November 2024. According to Bhatia, such a positive outlook is usually settled within 12 months, with a final decision to either upgrade the rating or revert to a “stable” outlook.
Bhatia explained that for S&P to raise South Africa’s rating, three key conditions must be met: improved economic growth, credible fiscal consolidation, and a halt on any new bailouts for underperforming state-owned enterprises. “If the momentum continues—you see slightly better growth, steady fiscal consolidation and no extra bailouts—the pressure is for an upgrade,” he said. “But if growth deteriorates again and fiscal is not under control, we could vote back to stable.”
He further clarified that external factors are not the main concern for the agency at this time. “It’s growth and the fiscus,” Bhatia stressed, highlighting that domestic policies and financial discipline are more critical at the moment.
South Africa has faced several economic challenges in recent years, including high unemployment, load shedding due to Eskom’s power generation issues, and rising debt levels. These challenges have kept its credit rating in junk status since 2020, limiting access to cheaper international financing.
Panel discussions at the same conference also touched on the South African Reserve Bank’s (SARB) long-standing plan to reduce the country’s inflation target range. Currently, the central bank aims for inflation between 3% and 6%, with a preferred midpoint of 4.5%. However, SARB recently revealed that its Monetary Policy Committee (MPC) is more inclined towards a tighter target, possibly aiming for 3% inflation over time.
Jeff Gable, head of macro and fixed income at Absa Bank, supported the idea of a lower inflation target. He said, “Over the medium-long term, a lower inflation target will generate lower interest rates. That’s an easier hurdle for investment.”
SARB Governor Lesetja Kganyago also confirmed that discussions about adjusting the inflation target are progressing. He stated that any final decision would need to be approved by the Minister of Finance.
Bhatia agreed that adjusting the inflation target downward would help reduce the government’s borrowing costs in the long term. But he also warned that the transition must be handled carefully to avoid unintended consequences, especially since foreign investors still hold about a quarter of South Africa’s domestic bonds.
“Getting it down is good for the economy,” Bhatia said. “But this transition has to be done cautiously. You don’t want capital flight with foreigners still holding about a quarter of the bonds.”
South Africa is currently trying to stabilise its finances and improve investor confidence, with Finance Minister Enoch Godongwana introducing spending cuts and structural reforms to contain the budget deficit. The government is also working to improve electricity supply, increase infrastructure spending, and support industrial growth to stimulate the economy.
Although S&P’s current outlook offers a chance for a positive change, the message from the rating agency is clear: South Africa must show consistent progress in growth and responsible budgeting, while avoiding costly bailouts, if it wants to return to investment grade status.
