Rating action

Scope Ratings GmbH (Scope) has today affirmed the Republic of South Africa’s long-term issuer and senior unsecured debt ratings at BB in both local and foreign currency, with Stable Outlook. The short-term issuer rating has been affirmed at S-3 in both local and foreign currency, with Stable Outlook.

South Africa’s BB rating is supported by: i) the size and diversification of the domestic economy – the largest of the African continent – underpinning its robust external position; ii) a favourable structure of the government debt, strong capital market access, and budgetary efforts to stabilise the government debt; iii) a robust monetary-policy framework and flexible exchange rate regime; and iv) the resilience of the domestic banking system alongside deep financial markets.

South Africa’s rating is challenged by: i) rising government debt driven by elevated headline deficits, low debt affordability, and a crystallisation of contingent liabilities; ii) modest economic-growth potential curbed by under-investment in public infrastructures alongside associated pressure on economic competitiveness; iii) governance challenges; and iv) socio-economic vulnerabilities such as high unemployment, poverty and income inequality.

Although the government unveiled near-term budgetary measures to reach a debt-stabilising primary surplus in FY2025-26, Scope expects a very gradual fiscal consolidation path due to spending pressures, a relatively narrow tax base, and subdued economic growth hindered by domestic bottlenecks and international tensions, including trade tensions with the United States (AA/Negative). The government of national unity (GNU) formed after 2024 elections offers a unique opportunity to tackle South Africa’s credit challenges, although acute social challenges hinder fiscal consolidation and structural reforms.

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Key rating drivers

A large and well-diversified economy. South Africa has the largest economy (nominal GDP of around USD 400bn in 2024) of the African continent, and elevated GDP per capita (USD 6,330) compared against sub-Saharan Africa regional averages. The diversified South-African economy centres around a robust tertiary sector (about two thirds of value added), supporting economic resilience against external-sector crises and mitigating exposures to commodity-price cycles. South Africa has a relatively large extractive industry, accounting for around 25% of exports, based on significant mineral reserves, particularly platinum group metals. South Africa’s large economy, strong political influence in regional and international fora, and its supportive business environment relative to sub-Saharan Africa peers, places the country as a continental gateway for foreign investment, which anchors its positive net international investment position (around 30% of GDP in Q1 2025)¹.

A favourable debt structure, strong capital market access, and budgetary efforts to stabilise government debt. Public debt is mostly fixed-rate (around 70% of outstanding domestic bonds), denominated in local currency (around 90% of the debt stock) and has a long average maturity (12 years). This sound government debt structure helps mitigate interest rate, foreign currency and liquidity risks. In the first half of 2025, downward pressure on the rand has remained contained, which reflects the depreciation of the US dollar, strong investor confidence alongside a comparatively investor-friendly outcome of the 2024 elections and a resilient GNU. International reserves increased to USD 68bn in June 2025, or about 6 months of imports.

Moreover, South Africa benefits from a large financial sector and deep capital markets, which provide the government with access to a diversified group of investors including pension funds and insurance companies, and the ability to issue debt across a large range of maturities and instruments. Despite moderate gross national savings (13% of GDP), the government funds the bulk of its gross annual borrowing requirements through domestic markets, limiting dependencies on international investor sentiment. Strong relations with international financial institutions further support funding flexibility, alike the strong credibility of the South African Reserve Bank (SARB) enabling to contain refinancing costs on domestic markets.

Finally, the government outlined budgetary measures to reach a debt-stabilising primary surplus of 0.8% of GDP in FY2025-26². Near-term fiscal consolidation is underpinned by not adjusting personal income tax brackets on inflation, increase in the general fuel levy and the early-retirement initiative without penalties to moderate the public sector wage bill. The government is also committed to further rationalise public spending and improve the efficiency and effectiveness of the tax administration. The potential introduction of long-term fiscal rules to strengthen sustainability and accountability could also support South Africa’s fiscal outlook.

A robust monetary policy framework and a resilient banking system. The SARB is independent from the government, has a proven track record of management of inflation, and sophistication and efficacy of monetary-policy execution. SARB operates within a well-regulated domestic banking system that strengthens the monetary policy transmission to the real economy, especially given an expansive system of wage bargaining and the strength of trade unions. Although inflation increased to 4.4% year-over-year in June 2025, from 2.8% in May, the annual rate is projected to decline around 4.0% from 4.4% in 2024. The SARB is expected to pursue its monetary policy easing, following the reduction of the repo rate in July to 7%. Discussions between the SARB and the Ministry of Finance to lower the inflation target range (currently 3-6%) could better anchor inflation expectations, moderate refinancing costs, and support economic competitiveness.

Moreover, the fundamentals of the banking system remain sound as reflected by an adequate tier-1 capital adequacy ratio of 14.9% of risk-weighted assets³. These strong fundamentals enhance system-wide resilience to a degree of deterioration of asset quality amid still-elevated financing rates and non-performing loans (5.2% of gross loans). The sound banking system is supported by the regulatory oversight of the SARB with the financial framework in line with Basel-III requirements. The resolution framework adopted in 2023 to strengthen the shock absorption capacity of systemic financial institutions is planned to be implemented gradually from 2026 onwards. Finally, South Africa was removed from the Financial Action Task Force (FATF) grey-list in June 2025, which reflects progress that was made since February 2023 to address weaknesses within its money-laundering oversight and counter-terrorist financing regime.

Rating challenges: rising government debt, moderate growth potential, and governance challenges.

First, South Africa faces large budget deficits, projected to 5.5% of GDP in 2025 and 2026, and 5.2% on average by 2030, which is more conservative than official projections given the unspecified measures to be clarified in the 2026 budget. The government faces the challenge to reduce the budget deficit while scaling up capital investment in infrastructures and public services, which is uncertain given the sluggish GDP growth outlook. The 2025 National Budget was re-tabled as the initially proposed value-added tax increase (half a percentage point) triggered tensions within the GNU about the impact on low-income households. Spending pressures relate to a large public sector wage bill and social transfers (including a Covid related grant in FY2025-26), as well as transfers to state-owned enterprises (SOEs), including the electricity utility Eskom, which faces overdue payments from municipalities. Net interest payments are projected to remain high, around 20% government revenue by 2030, which reflects a narrow revenue base and high-risk premium attached to elevated government debt and contingent liabilities.

The general government debt (excluding guarantees) is projected to remain on an increasing path – reaching 85% of GDP by 2030 – which contrasts against the government’s expectations of debt beginning a structural decline by FY2026-27. Drawdowns from the SARB’s Gold and Foreign Exchange Contingency Reserve Account (ZAR 150bn in 2024-2026, or around 2% of GDP) could support the near-term debt trajectory but medium-term budgetary efforts remain uncertain.

Second, South Africa faces relatively low GDP growth rates, a stagnating GDP per capita, and a moderate GDP growth potential. Despite the projected rebound in investment and lower interest rates, real GDP growth is projected at 1.0% in 2025, after 0.6% in 2024, 1.2% in 2026 and less than 2% by 2030. Domestic challenges, primarily about public infrastructures, cumulate with international tensions. The United States, South Africa’s second-biggest trading partner after China, announced a 30% tariff that could weigh on the employment rate in the most exposed sectors (i.e., agriculture, automotive). Bilateral tensions with the United States are compounded by the planned termination of the African Growth and Opportunity Act in September 2025, the suspension of the United States’s official development assistance, and a land expropriation law allowing seizures by the state without compensation.

South Africa launched a comprehensive and ambitious reform agenda aiming to effectively address core macro-economic priorities. The GNU set a development plan for the period 2024-29⁴, launched the second phase of the Operation Vulindlela in May 2025 and streamlined the regulatory framework for public-private partnerships. However, the execution of supply-side reforms to reduce red-tape and crowd in private-sector investment will take time to bear tangible results. Power outages and infrastructure bottlenecks (especially in rail and port) alongside limited fiscal leeway and rigidities in the labour market, as well as low savings relative to investment are key constraints on the GDP growth potential estimated at 1.5%.

Finally, the African National Congress (ANC) lost its parliamentary majority in May 2024 for the first time since the end of Apartheid and formed a GNU, with the centre-right Democratic Alliance (DA) as main partner. The ability of the coalition to overcome tensions around budgetary trade-offs supports near-term policy continuity. However, a heterogenous coalition (10 political parties) and acute social challenges raise the risk of political instability, as reflected in the tensions between the ANC and the DA around the response to United States’ tariffs. Should disagreements lead to a collapse of the GNU, the political opposition led by the far-left Economic Freedom Fighters and former President Zuma's party could partner with the ANC, at risk of significant policy shifts.

Rating-change drivers

The Stable Outlook represents the opinion that risks for the ratings are balanced over the next 12 to 18 months.

Upside scenarios for the long-term ratings and Outlooks are if (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;
    
3. external-sector risks are redressed, such as a significant bolstering of foreign-currency reserves.

Downside scenarios for the ratings and Outlooks are if (individually or collectively):

1. the public-debt burden continues to rise, for example, due 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;
    
4. governance challenges escalate.

Sovereign Quantitative Model (SQM) and Qualitative Scorecard (QS)

Scope’s SQM, which assesses core sovereign credit fundamentals, signals a first indicative credit rating of ‘bb+’ for South Africa, which was approved by the rating committee. Under Scope’s methodology, the indicative rating receives 1) no positive adjustment from the methodological reserve-currency adjustment; and 2) a one notch negative adjustment from the methodological political-risk quantitative adjustment. On this basis, a final SQM quantitative rating of ‘bb’ is reviewed by the Qualitative Scorecard (QS) and can be changed by up to three notches depending on the size of South Africa’s qualitative credit strengths or weaknesses compared against a peer group of sovereign states.

Scope has identified QS relative credit strengths for South Africa: i) ‘monetary policy framework’ ii) ‘debt profile and market access’, iii) ‘external debt structure’, iv) ‘banking sector performance’, and v) ‘financial sector oversight and governance’. Conversely, the following credit weaknesses have been identified in the QS: i) ‘growth potential and outlook’, ii) ‘fiscal policy framework’, iii) ‘environmental factors’, iv) ‘social factors’, and v) ‘governance factors’. On aggregate, the QS generates no adjustment for South Africa’s credit ratings and indicate long-term foreign- and local-currency ratings of BB.

A rating committee has discussed and confirmed these results.

Factoring of environment, social and governance (ESG)

Scope explicitly factors in ESG sustainability issues during the ratings process through the sovereign rating methodology’s stand-alone ESG sovereign risk pillar, having a significant 25% weighting under the quantitative model (SQM) and 20% weighting under the analyst-driven Qualitative Scorecard.

On environmental factors, South Africa scores weakly under the SQM due to high carbon-emissions intensity. It furthermore scores weakly on vulnerability to natural disasters and the ecological footprint of consumption relative to South Africa’s available biocapacity. The complementary qualitative QS assessment of ‘environmental factors’ is evaluated as ‘weak’ in view of challenges to reduce reliance on coal and decarbonised the mix of energy. Rehabilitation of domestic electricity production capacity coupled with enhancing of supply via renewable energies require multi-billion-rand investment. High debt-servicing costs, Eskom’s debt overhang, and social challenges further weigh on progress towards net-zero.

For social factors captured by the SQM, South Africa holds a comparatively strong old-age dependency ratio due to young demographics – like other societies of the African continent. However, South Africa scores relatively poorly on labour-force participation and the level of income inequality. A complementary QS assessment of ‘social factors’ was evaluated as ‘weak’. South Africa performs comparatively weakly given its high poverty and unemployment rates, especially for young people and women⁵. High geographic disparities, and investment needs in education and healthcare further constraint the rating.

Under governance-related factors captured by the SQM, South Africa scores below average on the World Bank Worldwide Governance Indicators, although nevertheless stronger than the average performance of sub-Saharan African peers. The complementary qualitative QS assessment of ‘governance factors’ is assessed as ‘weak’. Governance challenges and vulnerability to civil instability are exacerbated by acute social challenges. The ANC remains the dominant political party but lost its parliamentary majority in 2024 elections for the first time since the end of Apartheid.

Rating Committee
The main points discussed by the rating committee were: i) domestic economic risk; ii) public finance risk; iii) external economic risk; iv) financial stability risk; v) ESG-related risk; and vi) rating peers.

Rating driver references
1. International investment position, SARB, March 2025
2. Budget overview, May 2025
3. Banking sector trends, SARB, May 2025
4. Medium-term development plan 2024-29, March 2025
5. Quarterly Bulletin, SARB, June 2025

Methodology
The methodology used for these Credit Ratings and Outlooks, (Sovereign Rating Methodology, 27 January 2025), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings and/or Outlooks is (Sovereign Quantitative Model Version 4.0), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation    NO
With access to internal documents                                 NO
With access to management                                          NO
The following substantially material sources of information were used to prepare the Credit Ratings: public domain.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings and Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks are UK-endorsed.
Lead analyst: Thomas Gillet, Director
Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 14 October 2022. The Credit Ratings/Outlooks were last updated on 13 September 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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