South Africa’s path back to an investment-grade credit rating is increasingly a story of delivery: whether the fiscal machinery built over recent years keeps functioning, and whether next week’s mid-term budget demonstrates that it does. Investec Wealth & Investment International believes the country stands a good chance of regaining the rating within two years, and sees next week’s update as another step toward that goal.
The fund manager assigns a more than 50% chance that South Africa restores its investment-grade status by 2028, propelled by economic reforms and fiscal discipline that have shifted sentiment after years in which investors shunned the country. The operational question now, in the firm’s view, is whether the upcoming budget statement provides the kind of execution record the ratings companies need to act.
“A sufficiently credible medium-term budget policy statement could support an initial move by Moody’s Ratings and S&P Global Ratings to one notch below investment grade,” said investment strategist Osagyefo Mazwai. “If that progress is reinforced in the 2027 budget and 2027 MTBPS, an investment-grade rating by 2028 becomes achievable.”
Both ratings companies already carry South Africa’s credit assessment on a positive outlook. The institutional groundwork for an upgrade is in place. What remains is for the fiscal framework itself to hold.
Finance Minister Enoch Godongwana will deliver the mid-term budget update on October 21. He is expected to show continued growth in the country’s primary budget surplus, a gauge of how much revenue exceeds non-interest expenditure, supported by stronger corporate tax receipts. He is also expected to lay out more detail on a fiscal framework designed to ensure long-term budget discipline that keeps the ratio of government debt as a percentage of gross domestic product under control.
Mazwai framed the delivery test in concrete terms. The mid-term budget “needs to show that National Treasury is committed to a credible fiscal anchor, that the debt trajectory is moving decisively toward debt-to-GDP reduction, and that debt-service costs have peaked and can decline,” he said.
Market pricing already reflects expectations that the machinery is working. Credit-default-swap spreads suggest that markets are anticipating imminent upgrades to one notch below investment grade, according to Mazwai.
Meanwhile, Moody’s, which currently rates South Africa Ba2, two notches below investment grade, said earlier this week that the country is headed for its first credit-rating upgrade since 2009, provided its fiscal performance continues to improve. The assessment underscores how far the country’s fiscal operations have travelled from the point of collapse.
That collapse came in 2020, when Moody’s downgraded South Africa’s debt and the nation obtained a full house of junk ratings, leaving it without an investment-grade assessment for the first time in 25 years. Rebuilding from that position has depended less on announcements than on sustained execution. Recent performance has supplied evidence of exactly that.
Sentiment has been warmed most recently by the Treasury’s success in keeping the budget on track, and by the central bank’s decision to lower its inflation target to 3% last year, a move subsequently endorsed by Godongwana in a sign of government support. The endorsement mattered because it signalled alignment between monetary policy settings and fiscal authority, a coordination that implementers and oversight bodies watch closely when judging whether a fiscal anchor will hold.
The broader turnaround also reflects a break with the preceding decade. A period of overspending under former President Jacob Zuma, whose nearly nine years in office were marred by corruption and mismanagement, had eroded both the country’s finances and the credibility of its institutions. The current trajectory, by contrast, rests on measurable outcomes: a growing primary surplus, a debt ratio being brought under control, and debt-service costs that are expected to have peaked.
For an audience tracking whether delivery actually happens, the sequence ahead is clear. The October 21 statement must confirm the surplus trend and detail the fiscal framework. If it does, a move to one notch below investment grade by Moody’s and S&P could follow, and reinforcement through the 2027 budget and the 2027 MTBPS would put an investment-grade rating by 2028 within reach. Further context on the rating outlook is available at https://www.moneyweb.co.za/news/south-africa/south-africa-on-path-to-investment-grade-rating-investec-says/, where Investec’s assessment is set out in full.