October 28, 13:52IOL

Moody's rates South Africa's fiscal policy as positive for credit rating, maintaining upgrade prospects

The latest statement on the Medium-Term Budget Policy Statement (MTBPS) was viewed by Moody's as positive from a credit rating perspective for South Africa. This conclusion leaves open the possibility of a rating upgrade in the coming months.

Investec Chief Economist Annabel Bishop commented on Moody's positive credit outlook, pointing to several market factors currently influencing the rand exchange rate. Previously, the rand recovered some of the gains made in October. Global risk appetite has decreased due to investor concerns over inflated valuations of artificial intelligence-related technology stocks. Meanwhile, the US dollar strengthened, and the price of gold fell to approximately $4016 per ounce, matching levels from July and one year ago. For a country that remains heavily reliant on gold exports, this movement is significant.

Concurrently, oil prices exceeded $115 per barrel of Brent crude. Renewed tensions in the Middle East, including increased Iranian attacks on tankers and reduced traffic through the Strait of Hormuz, led to record freight rates and unusually low inventories.

Furthermore, the approach of winter in the Northern Hemisphere adds another source of demand uncertainty, even if the expected El Niño pattern may mitigate some heating needs.

Fuel Price Reduction and Narrowing Rate Differentials

The rise in oil prices intensified concerns about imported inflation. In response, the MTBPS announced a temporary reduction in fuel excise duties: 3 rand per liter for diesel and 1.50 rand per liter for petrol, from November 4 to December 1, with subsequent smaller reductions until early January. The IOL Fuel Price Support program indicates that this R10 billion intervention is aimed at supporting drivers and businesses without disrupting the overall fiscal trajectory.

This relief should help offset routine monthly price adjustments and limit the transmission of these changes into inflation and interest rates. Meanwhile, the interest rate differential between South Africa and the United States is expected to begin narrowing. The US is still viewed as a country that will raise rates this year, whereas no such move is anticipated from South Africa. This narrowing creates some downward pressure on the rand. However, the currency has not fallen as sharply as often seen during full-blown risk-off episodes. Volatility remained lower than in previous years, especially against the euro and pound, indicating that positive domestic conditions provided a partial buffer.

Moody's Observations

Annabel Bishop reported that Moody's assigned South Africa a BB rating and upgraded the outlook to positive in May. A rating upgrade remains likely within approximately eighteen months, provided the fiscal trajectory is maintained. The agency noted that the recent statement demonstrated continued fiscal consolidation despite tighter monetary policy and weaker nominal GDP growth, which negatively impacted some indicators.

Moody's forecasts that the debt-to-GDP ratio will peak and then decline to 84.9 percent within two years, down from 86.8 percent last year. The projected consolidated budget deficit improved due to revenue surpluses. At the same time, Moody's points to South Africa's persistent low debt service capacity: the share of revenue dedicated to interest payments remains higher than in most peer countries. High debt servicing costs continue to be the main constraint on public finances.

On the positive side, the agency sees potential for increased budget revenue, which is the main driver of consolidation. Improved tax receipts and an 11 percent increase in debt collection since the beginning of the year support this view. It is important to note that MTBPS forecasts show growth in the consolidated primary surplus even with plans to increase infrastructure spending. Moody's considers this a particularly noticeable commitment to discipline.

Broader Stabilization Picture

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Reports published around the MTBPS highlighted the same themes. The Ministry of Finance adjusted its 2026 growth forecast downwards to 1.2 percent, reflecting the oil shock and tougher global conditions. Nevertheless, debt stabilized for the first time in nearly two decades at 78.4 percent of GDP, and the primary surplus is expanding. A draft legislation on a fiscal anchor was released for public discussion, signaling an intent to ensure long-term discipline. Savings exceeding 38 billion rand were identified in the medium term through efficiency measures and loss reduction.

These domestic changes help explain why the recent weakness of the rand was more moderate than in previous periods of global caution. Markets appear to differentiate between temporary external pressure and a fiscal structure that continues to move in the right direction. In the long term, oil prices, gold prices, US rate expectations, and overall risk sentiment will remain dominant short-term factors affecting the exchange rate. Domestically, the fuel excise relief should help curb inflationary pressure, while the MTBPS assured investors that consolidation remains on track.

Under the base case scenario, the gradual removal of structural constraints, moderate growth, and sustained fiscal discipline should support greater rand stability in the medium term. The positive rating trajectory and improved revenues create a solid foundation. Currently, Moody's message is straightforward: the past budget update was positive for the credit rating. The prospect of a rating upgrade mentioned earlier this year remains valid, provided the government continues to follow the consolidation path set by the Minister of Finance. This is a constructive signal for investors and the broader economy while global conditions remain unstable.

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iol.co.zaOctober 22, 14:14

South Africa's financial indicators are improving, but benefits have not yet reached households and youth

According to assessments by financial and industry experts commenting on this year's Medium-Term Budget Policy Statement (MTBPS), South Africa's public finances are stabilizing, but positive changes are not yet felt by ordinary citizens or young job seekers.

Jorgen Ekmann, an asset manager at Consult by Momentum, noted that the government's financial condition is recovering faster than the budgets of most households. He reported that the Minister confirmed that 'debt has stabilized at 78.4% of GDP and is now decreasing, and the deficit is slightly better than projected in February.'

However, Ekmann warned that while this is favorable for the long term, it does not put money in people's pockets this month, given that domestic petrol exceeds 30 rand per liter and the mortgage rate is 10.75%.

Regarding the reduction in fuel levy by 1.50 rand per liter starting November 4th, Ekmann advised viewing this measure within context. He cautioned that early forecasts indicate a possible further increase in November, so the reduction may only mitigate price hikes rather than lower them at the pump, advising: 'Do not plan your budget based on this.'

Discussing the broader economic situation, Ekmann emphasized that growth rates have been lowered to 1.2%. He stated that in a slowing economy, employment is the most significant financial asset of a person, and urged citizens, where possible, to build a reserve fund covering three to six months of expenses and keep savings in two 'pots' for real financial emergencies.

Concerning the fiscal forecast, Ekmann noted that the Treasury expects tax revenues this year to exceed the February projection by 17.1 billion rand. However, he added that this amount is below the range of 40 to 50 billion rand expected by some economists, and most of these revenues are linked to commodity prices, which will not last long. He concluded that tax breaks cannot be relied upon in February.

On the topic of cryptocurrencies, he mentioned that although the Treasury aims to 'move away from preliminary approvals for cross-border crypto transactions,' it is still a project, and no changes have occurred yet.

Nkosinat Malangu, a specialist in youth employment and entrepreneurship at Momentum Group Foundation, opined that the fiscal forecast presents a mixed picture. He noted that the Minister's confirmation of the stabilization of South Africa's public finances is encouraging, especially the consistent commitment to infrastructure investment.

However, Malangu pointed out that with economic growth slowing to just 1.2% in 2026, the question remains how to translate this progress into meaningful employment opportunities for young South Africans.

He cautioned against ignoring the impact of high fuel and energy costs, as well as unreliable water supply, on economic growth, noting that such factors hinder attracting new investments and maintaining the viability of existing businesses, especially SMEs, for job creation.

Although infrastructure projects supported by IFISA have a potential investment value exceeding 200 billion rand, Malangu stressed that infrastructure spending does not automatically lead to youth employment.

He insisted on the need to develop targeted mechanisms to connect youth with these projects through apprenticeships, technical training, local procurement, and entry-level employment opportunities.

Malangu added that infrastructure ambitions have often featured in previous budget speeches, but there is still insufficient reporting on what has actually been implemented, what progress has been made compared to previous commitments, and importantly, how many jobs have been created as a result.

He was particularly pleased by the Minister's acknowledgment that expenditures do not always translate into results, referencing a review of 887 billion rand transferred to provinces and municipalities, where projects were often 'delayed, incomplete, or did not yield the expected benefits.'

He insisted that it is necessary to measure not only the volume of public spending but also how many young people actually acquire skills, find jobs, or start sustainable businesses as a result, and called on public procurement policy to ensure the 'targeted provision of opportunities for youth-owned enterprises.'

Malangu concluded that the Statement offers few concrete goals for youth employment or specific intervention measures, warning that without clear accountability, young South Africans risk being left behind.

In the energy sector, David McDonald, CEO of SolarAfrica, stated that the focus remains on private investment and implementation. 'From an energy perspective, this year's MTBPS is largely a continuation of existing policy, although it is encouraging to see some tangible progress in fulfilling previously made promises.'

McDonald highlighted the Credit Guarantee Mechanism, stating: 'The most significant development is the Credit Guarantee Mechanism, which is now included and has received conditional capital commitments of $553 million.'

He called this a 'positive step towards unlocking private investment in infrastructure, especially in power transmission, which remains one of the biggest constraints on South Africa's energy market.'

'We urgently need more grid connections to accommodate private generation and bring electricity to the market at more competitive prices,' said McDonald.

He emphasized that accessible electricity is critical for economic growth because it allows energy-intensive industries, such as smelters, to resume operations, and producers to gain confidence in expanding rather than contracting due to excessive energy costs.

While the Minister reiterated commitments to restructuring Eskom and creating an independent transmission operator, McDonald noted: 'Both are critical for creating a competitive electricity market,' but 'we still need greater clarity on implementation timelines.'

He also welcomed the additional 3.5 billion rand for smart metering in municipalities, explaining that 'improving revenue collection is crucial because when municipalities and Eskom cannot recover the cost of supplied electricity, the financial burden ultimately falls on paying customers.'

Concluding on the outlook, McDonald summarized: 'Overall, the direction remains positive, but execution is key right now. Grid expansion, improved revenue collection, and the introduction of significant market competition will ultimately determine whether South African businesses can receive electricity at prices that allow them to grow.'

iol.co.zaOctober 15, 10:34

Moody's signals potential credit rating upgrade for South Africa contingent on sustained fiscal improvements

South Africa may approach a credit rating upgrade from Moody's Ratings, but this depends on the government's ability to demonstrate sustained improvements in public finances.

According to Bloomberg, Moody's Vice President Evan Wohlmann stated that the agency could upgrade South Africa's rating if its fiscal indicators continue to improve. However, this possibility remains conditional, as the announcement of the medium-term budget policy next week will be an important test of the government's commitment to fiscal discipline.

During a virtual press briefing on Tuesday, Wohlmann noted that Moody's will look for evidence that the government is capable of containing spending pressures, increasing revenue collection, and ensuring a sustainable reduction in public debt.

Positive Signal

Currently, the agency rates South Africa at Ba2, which is two levels below investment grade. In May, Moody's changed its outlook from 'stable' to 'positive,' signaling the possibility of a rating upgrade, although the rating itself remained unchanged.

However, a positive outlook does not guarantee an upgrade. South Africa needs to prove that its improving financial position can withstand the test of time and is not merely a temporary result of stronger income or better-than-expected budget execution.

According to Business Day, Moody's forecasts that public debt will peak at around 87% of GDP in the 2025/26 fiscal year, after which it will gradually decrease to approximately 84% by 2030.

Crucial Step

Naturally, a stronger economy will help the government increase revenues and reduce debt relative to the size of the economy. But a slowdown in growth or a prolonged energy price shock could complicate efforts to stabilize public finances.

The timing of this latest update from Moody's is significant, as Finance Minister Enoch Godongwana is scheduled to present the Medium-Term Budget Policy Statement on October 21. This briefing is expected to provide a clearer picture of the government's plans regarding revenue, expenditure, and borrowing.

Any improvement would mark a significant step toward regaining investment grade status with Moody's, which last upgraded South Africa's rating in 2009.