Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases of sovereigns, sub-sovereigns and supranational organisations that may act as a lender of last resort.

Scope performs monitoring reviews to determine whether material changes and/or changes in macro-economic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit rating’s performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website and/or on its subscription platform ScopeOne.

Scope completed the monitoring review on the Republic of South Africa (long-term local- and foreign-currency issuer and senior unsecured debt ratings of BB and Stable Outlook; short-term local- and foreign-currency issuer ratings of S-3 and Stable Outlook) on 26 February 2025.

This monitoring note does not constitute a credit-rating action, nor does it indicate the likelihood that Scope will conduct a credit-rating action in the short term. Information about the latest credit-rating action connected with this monitoring note along with the associated rating history can be found on scoperatings.com.

Key rating factors

For the updated rating report accompanying this review, please see here.

South Africa’s BB credit ratings reflect multiple credit strengths, including: i) the size, sophistication and diversification of the domestic economy – the largest of the African continent; ii) a favourable structure of the government debt, including long average maturities, debt denominated predominantly in domestic currency and a diverse domestic and foreign investor base; iii) a robust monetary-policy framework; and iv) the resiliency of the domestic banking system alongside deep capital markets. The rating furthermore considers South Africa’s weight within regional and international financial institutions and the associated access to bilateral and multi-lateral financing channels.

The outstanding challenges for the credit ratings include: i) rising government debt driven by elevated headline deficits and a crystallisation of contingent liabilities; ii) modest economic-growth potential, curbed by an unsatisfactory energy and transport infrastructure alongside associated problems for economic competitiveness; iii) governance challenges; and iv) socio-economic vulnerabilities such as elevated unemployment and income inequality hindering budgetary consolidation and structural reform. The economy faces tariff risk amid US-centred global trade conflicts alongside the halt in American foreign aid over a land expropriation law.

Budgetary deficits have remained amid subdued economic performance, rising debt-servicing costs, outstanding social-spending programmes as well as the support for state-owned enterprises, such as debt relief for state utility Eskom through the fiscal year (FY) 2025-26. Such spending pressures hold back budgetary consolidation and keep the public-debt ratio on an increasing trajectory, which Scope projects to exceed 80% of GDP by 2027. This contrasts sharply against the government expectation of debt to begin a structural decline by FY2025-26 per the 2024 Medium Term Budget Policy Statement. A further upside revision of government debt projections is anticipated under 2025 budgeting. The planned draw-down of monies from the central bank’s Gold and Foreign Exchange Contingency Reserve Account – announced in the 2024 Budget – curtails the slope of the rise in debt for the next several years but does not constitute a structural solution for fiscal sustainability. The 2025 budgeting process has recently been delayed because of disagreements within the government.

South Africa launched the adoption of a comprehensive and ambitious reform agenda – the Operation Vulindlela – since October 2020, aiming to effectively address core macro-economic priorities. Despite some improvements, the adoption of reforms remains a work in progress and the medium-run economic growth potential estimate for the economy (1.5%) has so far remained unchanged. Power outages and infrastructure (especially in rail) bottlenecks alongside rigidities in the labour market are credit constraints. After subdued economic growth the past two years, Scope sees growth picking up to 1.5% in 2025 and in 2026.

The Stable Outlook for South Africa represents the present view that risks for the ratings are balanced.

Downside scenarios for the long-term ratings are (individually or collectively):

1. the public-debt burden continues to rise due, as an example, to delays in budgetary consolidation, further rises in the interest burden and/or additional support being demanded by state-owned enterprises;
    
2. the economic-growth outlook stays impaired, exacerbating outstanding socio-developmental challenges;
    
3. the external-sector risk profile weakens, such as a material decline in foreign-currency reserves and/or a significant depreciation in rand; and/or
    
4. governance challenges escalate.

Upside scenarios for the long-term ratings are (individually or collectively):

1. sustained budgetary consolidation stabilises public debt-to-GDP and the interest payment burden;
    
2. reforms addressing long-standing fundamental challenges enable a material rise in economic-growth potential and the countering of socio-economic risks; and/or
    
3. external-sector risks are redressed, such as a significant bolstering of foreign-currency reserves.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 January 2025) is available available on scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Dennis Shen, Senior Director

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