Bank of America economists Tatonga Rusike and Raghav Adlakha project that South Africa will see credit rating upgrades from Fitch, Moody's and S&P over the coming 12 months. The analysts attribute the more favorable ratings outlook to improving fiscal metrics and an upgraded economic outlook underpinned by structural reforms in energy and logistics.
According to the analysts, key fiscal improvements include larger primary surpluses. They link the brighter ratings trajectory to policy changes and reforms that are already underway in critical parts of the economy, most notably the energy and logistics sectors, which are contributing to the upgraded economic outlook cited by the bank.
Despite the optimism for near-term upgrades from the three major agencies, Bank of America is explicit that regaining investment grade would require a longer and more sustained performance. The analysts set out precise benchmarks that would be needed for investment-grade status: persistently higher GDP growth, a demonstrable reduction in public debt, and a lower ratio of interest payments to government revenue.
"To regain investment grade, South Africa would need much higher gross domestic product growth — closer to 2% — consistently, and/or better fiscal and debt metrics," the analysts wrote.
They further specify the trajectory required on debt and interest burdens: "debt-to-GDP firmly trending down to 60-70% and interest to revenue less than 15%." These targets are presented as necessary conditions rather than immediate expectations.
Bank of America also notes that the formal adoption of a fiscal rule - a structural anchor that could reinforce market confidence and support a return to investment grade - is unlikely to occur until nearer the 2028 or 2029 political cycle. The analysts state that such a rule would be a helpful milestone en route to reclaiming investment-grade ratings.
In sum, the bank's view combines a relatively near-term prospect of rating upgrades from major agencies with a more cautious assessment of what it would take for South Africa to reach investment-grade status. Short-term upgrades are linked to recent fiscal improvements and sectoral reforms, while full investment-grade metrics demand sustained economic growth and marked improvements in debt and interest burden ratios.
Readouts
- Bank of America expects upgrades from Fitch, Moody's and S&P within 12 months.
- Upgrades are driven by larger primary surpluses and an upgraded economic outlook tied to energy and logistics reforms.
- Investment-grade status requires sustained GDP around 2%, debt-to-GDP trending to 60-70%, and interest-to-revenue below 15%.
- A formal fiscal rule is considered unlikely until around the 2028 or 2029 political cycle.