Moody’s signals possible South African credit rating upgrade – but there’s a catch

South Africa may be edging closer to a credit rating upgrade from Moody's Ratings, but that ultimately rests on the government's ability to show that improvements in its public finances can be sustained.

According to Bloomberg, Moody’s vice-president Evan Wohlmann said the agency could upgrade South Africa if its fiscal performance continued to improve. However, the possibility remains conditional, with next week’s Medium-Term Budget Policy Statement providing an important test of the government’s commitment to fiscal discipline.

Wohlmann was speaking at a virtual media briefing on Tuesday.

Moody’s will be looking for evidence that the government can contain spending pressures, improve revenue collection and place public debt on a sustainable downward trajectory.

A positive signal

The agency currently rates South Africa Ba2, two notches below investment grade. In May, Moody’s revised its outlook from stable to positive, signalling that an upgrade was possible while leaving the actual rating unchanged.

The positive outlook does not guarantee an upgrade, however. South Africa will need to demonstrate that its improving fiscal position can stand the test of time, rather than being a temporary benefit of stronger revenue or better-than-expected budget performance.

Moody’s expects government debt to peak at around 87% of gross domestic product (GDP) in the 2025/26 financial year before gradually declining to approximately 84% by 2030, according to Business Day.

Crucial step

Of course, a stronger economy would help government increase revenue and reduce debt relative to the size of the economy. But weaker growth or a prolonged energy-price shock could complicate efforts to stabilise public finances.

The timing of this latest update from Moody's is significant, with Finance Minister Enoch Godongwana due to deliver the Medium-Term Budget Policy Statement on October 21. The briefing is expected to provide a clearer picture of the government’s revenue, expenditure and borrowing plans.

Any improvement would mark a significant step towards restoring investment-grade status with Moody’s, which last upgraded South Africa in 2009.

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