Moody’s says South Africa’s debt may have peaked as reforms improve fiscal outlook

South Africa’s debt burden could begin easing after years of deterioration, with Moody’s Ratings saying stronger revenues, tighter spending and ongoing reforms are helping stabilise Africa’s most industrialised economy.

• Moody’s said South Africa’s debt burden could begin easing as stronger tax revenues, spending restraint and reforms improve the country’s fiscal outlook.
• The agency kept South Africa’s Ba2 credit rating with a stable outlook and expects debt to gradually decline after peaking at 86.8% of GDP in 2025.
• Moody’s also projected narrower budget deficits and stronger primary surpluses, supported by lower borrowing costs and ongoing reforms.
• However, it warned that high debt, weak growth and political risks ahead of the 2029 election remain major challenges.

In a report published on Wednesday, Moody’s said improving tax collection, spending restraint and easing funding costs were supporting the country’s fiscal outlook.

The ratings agency maintained South Africa’s Ba2 credit rating with a stable outlook, suggesting confidence that debt levels can gradually come under control if reforms continue.

Moody’s estimates government debt peaked at 86.8% of gross domestic product in 2025 and expects it to gradually decline to 84.9% by 2028.

South Africa’s budget deficit is also projected to narrow from 4.5% of GDP in 2025 to 4.3% in 2026 and 3.8% in 2027.

The agency said the country’s primary surplus, which excludes interest payments, is expected to rise to 1.8% of GDP by 2027, above the estimated 1.5% level needed to stabilise debt.

The outlook marks a notable shift for South Africa, which has spent years battling weak economic growth, persistent power shortages, logistics bottlenecks and rising debt-servicing costs.

Still, Moody’s warned that debt levels above 80% of GDP continue to limit the government’s ability to respond to future economic shocks.

Interest payments alone accounted for 18.8% of government revenue in 2025, which the agency said compares poorly with many countries that share similar credit ratings.

The report comes as investors closely monitor whether the country’s Government of National Unity can maintain political stability and continue reforms ahead of the 2029 general election.

Moody’s said its baseline expectation is that the coalition between the African National Congress and the Democratic Alliance will remain intact through the current administration, limiting the risk of a major policy reversal during the 2027-2029 electoral cycle.

The agency also said South Africa’s move toward a lower inflation target of 3%, with a one percentage point tolerance band, could help reduce borrowing costs and improve investor confidence over time.

Economic growth, however, remains weak by emerging market standards. Moody’s expects real GDP growth to gradually rise to around 2% by 2028 from 0.5% in 2024, supported by stronger investment and resilient consumer spending.

The ratings agency added that sustained reforms in electricity, logistics and water infrastructure could lift medium-term growth above 2% and attract more private investment into the economy.

South Africa has recently made progress in reducing the intensity of power cuts after years of rolling blackouts disrupted businesses and households.

Authorities have also accelerated efforts to open parts of the energy and freight sectors to private investment as the government seeks to revive growth and improve public finances.