S&P Upgrades South Africa’s Credit Rating: A Turning Point After 20 Years

In a landmark decision signaling a potential economic turning point, Standard & Poor’s (S&P) has upgraded South Africa’s sovereign credit rating for the first time in nearly two decades. The move, announced on Friday, reflects growing confidence in the country’s fiscal discipline and reform trajectory under its coalition government.

Primary Source: Citizen.co.za

Breaking the Two-Decade Drought

S&P raised South Africa’s foreign currency long-term rating to ‘BB’ from ‘BB-‘ and its local currency rating to ‘BB+’ from ‘BB’. Crucially, the agency assigned a positive outlook, indicating potential for further upgrades if the current reform momentum continues. This marks the first upward movement from a major ratings agency since South Africa began its descent into “junk status” territory.

The Fiscal Foundation: Primary Surpluses and SOE Reform

The upgrade rests on two pivotal achievements. First, S&P expects the government to post its third consecutive year of primary budget surpluses—a significant milestone where revenue exceeds non-interest spending. This disciplined fiscal approach has begun to stabilize South Africa’s debt trajectory.

Second, the agency noted substantial progress in reforming state-owned enterprises (SOEs), particularly Eskom. The electricity utility’s return to profitability after eight years of losses has substantially reduced contingent liabilities that previously threatened the national fiscus.

“The government is on track to post its third annual primary surplus,” S&P stated, while noting that “contingent liabilities are likely to ease as state-owned electricity utility, Eskom, is being reformed.”

Economic Growth: Cautious Optimism Amid Structural Challenges

While the fiscal picture improves, S&P maintains a measured view on economic growth. The agency forecasts GDP expansion of 1.1% in 2025, up from 2024’s subdued 0.5%, with growth averaging 1.5% over 2026-2028.

This growth trajectory, while positive, remains insufficient to address South Africa’s profound social challenges. As S&P noted, “per capita GDP growth is forecast to average 0.6%, below its peers’ and is insufficient to materially raise living standards or lower unemployment, which currently stands at 33%.”

Analyst Perspective: A Welcome but Fragile Victory

Professor Raymond Parsons of the NWU Business School welcomed the upgrade as “welcome news for the economy” that “recognises the extent to which certain recent positive economic developments improved South Africa’s fiscal position and growth outlook.”

However, Parsons cautioned that while S&P’s decision “has now opened the way for South Africa to eventually extricate itself from its current junk status, there is still a long way to go.” He emphasized that maintaining economic steersmanship over the coming years remains critical, as “weaker growth would jeopardise the planned fiscal trajectory.”

The Road Ahead: Upside Potential and Downside Risks

S&P outlined clear parameters for future rating actions. Further upgrades could materialize if fiscal imbalances reduce more significantly than expected, supported by “an improving track record of effective reforms that further strengthen economic growth.”

Conversely, the agency warned it could revise the outlook back to stable if reforms stall, growth deteriorates, or fiscal deficits widen—particularly if infrastructure constraints reemerge.

Global Context: Navigating Trade Headwinds

The ratings improvement comes despite significant external challenges. S&P specifically noted that growth will be “constrained by global tariff-related risks,” referencing the increasingly complex international trade environment. This acknowledgment highlights that South Africa’s economic fortunes remain tied to global dynamics beyond its control.

As the country celebrates this long-awaited upgrade, the path forward requires balancing fiscal discipline with growth-stimulating reforms—a challenging equilibrium that will determine whether this milestone represents a temporary respite or the beginning of sustained economic recovery.