Moody's Ratings (Moody's) has today changed the outlook on the Government of South Africa to positive from stable and has affirmed the Government of South Africa's domestic and foreign-currency long-term issuer and senior unsecured ratings at Ba2. 

The positive outlook reflects South Africa's gradually strengthening fiscal performance and sustained commitment to structural reforms, with prospects of increasingly tangible results. We expect a rising primary surplus and gradually improving debt-service costs to stabilise the general government debt burden in the near term. The better fiscal outlook for South Africa is still at an early stage but continued improvements could support a shift to a clear downward trajectory in debt and debt-service costs. We expect stronger investment, supported by ongoing reforms, to gradually raise real GDP growth to around 2% by 2028 and underpin fiscal improvements. While the Middle East conflict poses a risk to near-term growth, we expect the policy response to remain measured and macroeconomic stability to be preserved. Moreover, the risk of a reversal in policy from the forthcoming electoral cycle appears limited, although the cycle could test reform momentum. 

The affirmation of the Ba2 ratings reflects South Africa's relatively weak fiscal and economic fundamentals, with fiscal and economic reform-related improvements still at an early stage. The affirmation also reflects South Africa's low growth potential, constrained by a weak labour market and fragile, albeit improving, state of network infrastructure, balanced by a flexible exchange rate, low foreign-currency external debt, and robust core institutions. 

South Africa's local- and foreign-currency country ceilings remain unchanged at Baa1 and Baa2, respectively. The Baa1 local-currency country ceiling is positioned four notches above the sovereign rating, reflecting predictable institutions and government actions as well as limited external imbalances, but also takes into account the government's strong footprint in the economy and financial market. The one-notch gap between the foreign-currency and local-currency country ceiling reflects moderate policy effectiveness and a track record of maintaining an open capital account, indicating that the risk of restrictions on transfer and convertibility in times of stress remains contained. 

RATINGS RATIONALE 

RATIONALE FOR THE CHANGE IN OUTLOOK TO POSITIVE 

STRENGTHENING FISCAL PERFORMANCE HELPS STABILISE DEBT AND SUPPORTS POTENTIAL SHIFT TO A CLEAR DOWNWARD TRAJECTORY 

South Africa's primary budget surplus was larger than we expected in the 2025 fiscal year (ending March 2026), which we estimate at around 1% of GDP, benefitting from strong, broad-based revenue growth alongside continued credible spending restraint. This follows a track record of primary surpluses since 2022. 

Going forward, we expect government primary expenditure will grow modestly and broadly in line with budget targets, despite significant social spending pressures. Large spending items remain well anchored. The Social Relief of Distress grant is fully provisioned in the government's medium-term fiscal plan and public sector wages are capped for the next two years by the 2025 agreement. Even if growth temporarily

weakens as a result of the Middle East conflict, we expect replenished cash buffers alongside a measured and targeted policy response will not alter this trend. 

At the same time, government interest expenditure is set to improve as stronger fiscal credibility and a lower inflation target reduce the risk premium demanded by investors. These structural improvements can help sustain the positive trend, even as higher inflation in 2026 may slow a near-term reduction in interest expenditure.

Strong investor demand is evident in the sharp decline in 10-year government bond yields through most of 2025, and the resilience of these yields during the current higher oil price period. A shift in issuance away from the long-end of the curve should also help structurally reduce funding costs, without materially increasing refinancing risks given South Africa's very long average maturity of debt. 

We expect the primary surplus to rise gradually to around 2% in 2028 which, alongside gradually lower debt-service costs, will help stabilise the general government debt burden in the near-term and support a gradual decline to around 85% of GDP in 2028, from an estimated 87% in 2025. 

There is the potential that stronger tax revenue performance than we currently forecast, including from elevated commodity prices, will accelerate the decline in the government debt burden. Recent financial improvements at state-owned enterprises also reduce the likelihood of new material government guarantees which we have included in the debt burden since 2019. 

REFORM PROGRESS SUPPORTS ONGOING ECONOMIC RECOVERY AMID GLOBAL SLOWDOWN RISKS 

We expect stronger investment and resilient consumption to raise real GDP growth to around 2% by 2028, up from an average 0.8% between 2023 and 2025, which will help underpin fiscal improvements. Ongoing reform progress and reduced funding costs are supporting investor confidence, which was further boosted by the recent removal of South Africa from the Financial Action Task Force's grey list. The gradual economic recovery will halt the decline in per capita income and keep macro-fiscal pressures contained. 

As a result of the Middle East conflict and its impact on South Africa's inflation and real incomes, we have revised down our 2026 and 2027 real GDP growth forecasts by around 20–50 basis points. More persistent inflation and/or a more pronounced slowdown in global growth could, in our view, disrupt South Africa's near-term recovery and weaken the sovereign's fiscal balance beyond our current expectations. However, we expect macroeconomic stability to be preserved and the commitment to fiscal consolidation to remain steadfast, limiting the credit impact even under more adverse scenarios. 

Over the longer term, sustained progress in implementing energy, logistics and water reforms can crowd in substantial new private investment to help address infrastructure gaps and boost export capacity, which could sustain South Africa's economic growth at more robust levels, alleviating a key rating constraint. 

Greater private participation in logistics could improve the reliability of rail and port operations, supporting mining and manufacturing output, while expanded grid capacity would help unlock South Africa's large renewable energy pipeline and further improve power supply. Surveys point to a strengthening capital projects pipeline, suggesting infrastructure investment may start to gain pace, supported by the recent IBRD (World Bank, Aaa stable) Credit Guarantee Vehicle to mobilise private sector financing. That said, while the strategy has already resulted in some important structural improvements, such as a stabilization in the power supply, we expect the translation of legislative and regulatory reforms into operational gains to remain a complex and multiyear process. 

Our baseline assumes the Government of National Unity will endure through its term, supported by strong incentives among the main parties to maintain stability and advance reforms ahead of the 2029 general election. That said, reform momentum still largely depends on presidential backing and could weaken over the forthcoming electoral cycle. However, the risk of abrupt policy reversal appears limited given the transition to coalition governments and ongoing efforts to entrench reforms through legislation, regulation, and institutional strengthening. 

RATIONALE FOR THE AFFIRMATION OF THE Ba2 RATINGS

The affirmation of the Ba2 ratings reflects South Africa's relatively weak fiscal and economic fundamentals, with fiscal and economic reform-related improvements still at an early stage. 

As mentioned, we expect South Africa's general government debt burden to moderate to 85% of GDP by 2028, which will continue to limit the sovereign's ability to withstand shocks. Furthermore, the affordability of government debt remains weak. Headline interest expenditure at around 19% of government revenue in 2025 (somewhat higher under a broader measure including capitalized interest) is weaker than many similarly rated peers. 

The affirmation also reflects the sovereign's low growth potential due to a weak labour market and fragile, albeit improving, state of network infrastructure, while high inequality complicates policy efforts and can fuel social tensions. At the same time, a flexible exchange rate, low foreign-currency external debt and relatively large external assets help facilitate adjustment to external shocks. 

Finally, the affirmation reflects the sovereign's robust core institutions, including the central bank and the judicial system, and evidence of the institutional framework's capacity to preserve macroeconomic stability. A deep and diversified domestic financial sector also helps to mitigate risks to government liquidity. This is balanced with the legacy of high-level corruption which severely damaged the state-owned enterprise sector with long-lasting negative implications for economic and fiscal strength. 

ENVIRONMENTAL, SOCIAL, GOVERNANCE (ESG) CONSIDERATIONS 

South Africa's CIS-4 ESG Credit Impact Score indicates that ESG considerations have a discernible impact on the current rating, which is lower than it would have been if ESG risks were not present. It takes into account the country's high exposure to social risks, which reflects very high levels of income inequality and youth unemployment, and its moderate exposure to environmental risks. These are combined with relatively low resilience as the weak public finances and relatively low income levels constrain its capacity to respond to environmental and social shocks. 

GDP per capita (PPP basis, US$): 15,895 (2024) (also known as Per Capita Income)

Real GDP growth (% change): 0.5% (2024) (also known as GDP Growth) 

Inflation Rate (CPI, % change Dec/Dec): 3.1% (2024) 

Gen. Gov. Financial Balance/GDP: -4.8% (2024) (also known as Fiscal Balance) 

Current Account Balance/GDP: -0.7% (2024) (also known as External Balance) 

External debt/GDP: 43.9% (2024) 

Economic resiliency: baa2 

Default history: At least one default event (on bonds and/or loans) has been recorded since 1983. 

On 19 May 2026, a rating committee was called to discuss the rating of the South Africa, Government of. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have not materially changed. The issuer's institutions and governance strength, have not materially changed. The issuer's fiscal or financial strength, including its debt profile, has decreased. The issuer's susceptibility to event risks has not materially changed. 

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS 

We could upgrade the ratings if fiscal performance continues to improve, through sustained primary surpluses and declining debt-servicing costs, supporting a credible and material decline in the government debt burden from its expected peak in the 2025 fiscal year, and an improvement in debt affordability. Such an outcome would signal stronger policy effectiveness than we currently assess and a broader reduction in fiscal risks. These improvements would also likely be underpinned by the continued implementation of structural reforms, supporting a gradual economic recovery beyond the current oil price shock. That said,

South Africa's fiscal strength is likely to remain weak for the foreseeable future. 

The positive outlook signals that a downgrade is unlikely in the near term. The outlook could be returned to stable if we expect fiscal improvements to slow, limiting the prospects for a material reversal in South Africa's government debt burden. This could arise from evidence that the government's commitment to restraining expenditure growth is weaker than we expect, or from indications that financial support to state owned enterprises will exceed our assumptions. A material slowdown in reform implementation— particularly if it durably weighs on investor confidence and medium term growth prospects—could also support a stabilization in the outlook. Similarly, indications that reform momentum would likely be weaker under a new administration would also be negative for the credit profile.

The principal methodology used in these ratings was Sovereigns published in November 2022 and available at https://ratings.moodys.com/rmc-documents/395819. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology. 

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable. 

The net effect of any adjustments applied to rating factor scores or scorecard outputs under the primary methodology(ies), if any, was not material to the ratings addressed in this announcement.