Moody’s Says South Africa Debt Set to Stabilise as Fiscal Outlook Improves

Mintesinot Niggusie

Moody's Ratings said South Africa’s government debt is expected to stabilise this year before gradually declining over the medium term, supported by stronger tax collection, restrained public spending and lower funding costs.

In a report released on Wednesday, the ratings agency said government debt likely peaked at 86.8 percent of gross document product in 2025 and is projected to ease to 84.9 percent by 2028. Moody’s currently rates South Africa at Ba2 with a stable outlook.

The agency forecast the country’s general government deficit would narrow to 4.3 percent of GDP in 2026 and 3.8 percent in 2027, compared with 4.5 percent in 2025. It also projected the primary surplus to rise to 1.8 percent of GDP by 2027, above the level it estimates is required to stabilise debt.

Despite the improving fiscal trajectory, Moody’s said debt servicing costs remain a major constraint. Interest payments absorbed 18.8 percent of government revenue in 2025, a ratio the agency said remains high compared with similarly rated economies.

The report said plans to lower the inflation target to 3 percent, within a one percentage point tolerance band, could help reduce risk premiums and borrowing costs over time. Moody’s also expects economic growth to strengthen gradually, with real GDP expansion forecast to rise to around 2 percent by 2028 from 0.5 percent in 2024. The agency linked the outlook to stronger investment activity and resilient consumer demand.

According to the report, ongoing reforms in electricity, logistics and water infrastructure could improve medium term growth potential and encourage additional private sector investment. Moody’s said the 2027 to 2029 electoral cycle would test the durability of the reform agenda, although the likelihood of a major policy reversal remains limited.