South African government debt is still on track to have peaked despite the Iran war, Moody’s Ratings said in a new report that endorsed the nation’s focus on reform and prudent public finances.
“Improving fiscal performance and steady reform momentum support our view that government debt will stabilise this year before gradually declining,” the ratings agency said in a note on Wednesday.
“This credit-positive shift is supported by stronger revenue, greater spending restraint and improving funding costs.”
Investors warmed to South African assets following better-than-expected news from its February budget and after it won an upgrade from S&P Global Ratings, which lifted its credit assessment for the first time in two decades to BB with a positive outlook.
Moody’s rates South Africa at Ba2 with a stable outlook, which it is expected to review later this month.
The agency saw South Africa’s debt peaking at 86.8% of gross domestic product in the fiscal year ending March 2026, above National Treasury’s 78.9% forecast, before easing to 84.9% by 2028.
It also sees the consolidated budget deficit narrowing to 4.3% in the current fiscal year from 4.5%, helped by rising primary surpluses, which exclude debt-service costs.
“The 2026 budget confirmed South Africa’s improving fiscal position and the authorities’ commitment to consolidation,” Moody’s said.
Still, the agency cautioned that faster debt reduction will depend on stronger economic growth, which faces a near-term threat from the fallout over the conflict in the Middle East.
Even so, it expects fiscal and monetary authorities to respond to the economic impact of the war in a “measured and proportionate” way, estimating the drag on growth at about 20 to 50 basis points in 2026 and 2027 if inflation averages close to 4% this year.
The country’s forthcoming electoral cycle also poses risks.
South Africa will hold municipal elections on November 4, a key test of support for the African National Congress after it lost its parliamentary majority in 2024 and began governing in a coalition as the largest party.
How the ANC fares in the ballot could influence internal party dynamics and support for the government’s current policies.
Moody’s viewed the risk of a sharp policy reversal as low and said that it expects the so-called Government of National Unity to hold together for the rest of its term. The next national elections will be held in 2029.
Still, “the durability of reform momentum will be tested if there is a new administration which is less committed to progressing reforms and tackling vested interests.”
BLOOMBERG
