South Africa Debt Outlook Improves on Stronger Fiscal Position: Moody's

By Al Mayadeen English

7 May 2026 17:08

Moody's Ratings said South Africa’s improving fiscal position and reform efforts could stabilize debt in the near term and support gradual economic recovery, despite ongoing constraints from high debt levels.

Moody's Ratings signaled a more favorable trajectory for South Africa’s public finances, Reuters reported Wednesday, citing a report that said stronger fiscal management and reforms could help stabilize government debt this year before a gradual decline.

The agency pointed to a combination of higher revenues, tighter control over expenditures, and easing borrowing costs as key drivers behind the improved outlook. However, it cautioned that debt levels exceeding 80% of gross domestic product continue to restrict the government’s capacity to respond to potential economic shocks. Moody’s currently assigns South Africa a Ba2 rating with a stable outlook.

Deficit, Debt Outlook

According to the report, the country’s fiscal deficit is expected to narrow to 4.3% of GDP in 2026 and further to 3.8% in 2027, compared with 4.5% in 2025. At the same time, the primary surplus is projected to rise to 1.8% of GDP by 2027, surpassing the estimated 1.5% threshold required to stabilize debt.

Moody’s estimates that general government debt reached its peak at 86.8% of GDP in 2025 and anticipates a gradual decline to 84.9% by 2028. Still, debt servicing costs remain elevated, with interest payments accounting for 18.8% of government revenue in 2025, higher than many similarly rated economies.

The agency also noted that a shift toward a lower inflation target of 3%, with a tolerance range of one percentage point, could help reduce risk premiums and lower financing costs over time.

Economic growth is forecast to recover gradually, rising from 0.5% in 2024 to around 2% by 2028, supported by stronger investment and resilient consumer demand. Moody’s added that continued reforms in electricity supply, logistics networks, and water infrastructure could raise medium-term growth potential above 2% and encourage private sector participation.

Reform Risks

The outlook remains contingent on the durability of recent fiscal gains and the pace of structural reforms, particularly in energy and transport, where constraints tied to Eskom and Transnet have historically weighed on growth and investor confidence. Analysts also note that part of the recent revenue improvement has been supported by favorable commodity prices, raising questions about sustainability if external conditions weaken, while elevated borrowing costs and global financial volatility continue to pose risks.

Looking ahead, the report identified the 2027-2029 electoral period as a potential test for the continuity of reforms, though it assessed the likelihood of a significant policy reversal as limited. Its baseline scenario assumes the  Government of National Unity will remain intact throughout its term, with both the African National Congress and the Democratic Alliance prioritizing stability ahead of the 2029 general election.