Duncan Pieterse, Director-General of the National Treasury, says improved sovereign credit ratings have real-world benefits for ordinary South Africans.

The positive outlooks from two of the major rating agencies are an opportunity, not an endpoint, writes Duncan Pieterse, Director-General of the National Treasury. They signal that we have the potential to lift our economic growth rate higher and to reduce our public debt faster.

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Over three consecutive Friday evenings over the past month, South Africa received positive news from each of the three global credit ratings agencies. This is a clear change of direction in our ratings trajectory after more than a decade of negative ratings news. It could ultimately see South Africa regain its investment grade status – if it continues to do the right things on fiscal and economic policy.

That will help to ease financial conditions, not just for the government but for ordinary people.

First, Moody’s put South Africa’s sovereign credit rating on a positive outlook on 22 May, a move which signals the rating agency could upgrade the rating itself. Then S&P Global, which in November became the first major rating agency in 16 years to upgrade South Africa’s rating, affirmed the rating and maintained its positive outlook. Finally, and most unexpectedly, Fitch upgraded South Africa’s rating by one notch, even though it hadn’t taken the usual step of putting it on positive outlook first.

The three ratings agencies’ decisions come despite the heightened uncertainty about the global and domestic economic outlooks since the current Middle East war began in late February. These decisions are a strong vote of confidence in the management of South Africa’s public finances. They are a notable contrast to an overwhelmingly negative global ratings trend.

South Africa is only the second G20 country to be upgraded by Fitch this year. It is one of only two G20 countries on positive outlook at S&P and the only one at Moody’s.

Historic steps

The ratings actions are also notable in historical context. The last time Moody’s put South Africa on positive outlook for an upgrade was in 2007. The last time Fitch upgraded South Africa’s rating was in 2005. Those were boom years in which economic growth was running at 5% and the public debt was less than 30% of GDP.

Growth is now much lower and debt much higher. However, two factors are driving better ratings outcomes: first, government is showing it can deliver on its promise to restore the health of the public finances and reduce debt to more sustainable levels. Second, it has demonstrated clear progress on the structural reforms it embarked on to lift economic growth through the establishment of Operation Vulindlela.

For the past three years, government’s fiscal strategy has been anchored by two objectives: stabilising and then reducing the debt-to-GDP ratio, and a growing primary surplus. Government has now achieved a primary fiscal surplus – where revenue exceeds non-interest spending – for three consecutive years.

Year-end figures showed the surplus came in even better than February’s Budget estimate. This is a significant turnaround from the primary deficits and rising debt levels of the previous decade. For the rating agencies, it highlights South Africa’s recent track record of fiscal prudence and progress on fiscal consolidation, despite weak economic growth and external shocks.

We are on track to widen the primary surplus over the medium term, enabling government to reduce debt and debt service costs despite geopolitical headwinds to growth and inflation.

Government’s steady progress on its structural reform programme is also driving better rating outcomes. Reforms under Operation Vulindlela have started to address the constraints in energy, logistics, water and other areas holding back investment and growth.

The three agencies now all have equivalent ratings on South Africa. The ratings are still two notches below investment grade, which means we still have some way to go to regain our investment-grade credit ratings. But the momentum is now positive.

Real-life benefits

Improved sovereign credit ratings have real-world benefits for ordinary South Africans. They boost confidence. They directly influence investor perceptions of government’s ability to repay its debt and so help to reduce the cost at which investors are willing to lend to government. That translates into lower borrowing costs for government, as well as for households and businesses, and supports higher economic growth and job creation. Regaining investment-grade status would ultimately prompt a surge of foreign investment. Businesses are more willing to invest where fiscal risk is low and the government manages public finances well enough to keep tax increases to a minimum.

The positive outlooks from two of the major rating agencies are an opportunity, not an endpoint. They signal that we have the potential to lift our economic growth rate higher and to reduce our public debt faster.

Government is committed to do so. Cabinet has endorsed the 2027 Medium Term Expenditure Framework (MTEF) Technical guidelines, which we issued to departments and public entities earlier this month, signalling the start of the 2027 budget process. The guidelines underline government’s intent to use public money more effectively and efficiently to address national priorities.

Last year, we introduced the Targeted and Responsible Savings (TARS) initiative. This is designed to identify programmes that are inefficient, ineffective or low priority, and to reduce or close them, yielding savings that can be used for priority spending and better service delivery. The Programme Assessment Matrix (PAM) was introduced as a mechanism to evaluate programme performance to ensure government programmes are fit-for-purpose. The February budget already identified TARS savings of R12 billion over the medium term.

The MTEF guidelines require that any additions to the fiscal spending envelope can be considered only if additional savings are identified through the TARS process. Departments must look to reprioritise within existing budget baselines to address new spending pressures and must use the PAM to assess programmes and public entities. They must keep their compensation budgets within the limits set in the 2026 Budget.

The guidelines also make it clear that if revenues come in higher than Budget estimates, the gains will address temporary needs such as infrastructure investment that can ultimately boost growth and job creation. Using temporary revenue gains to fund permanent spending increases is poor fiscal management.

All this will contribute to improved management of the public finances. Over time, this will benefit ordinary people through better public services because government will spend less public funds on servicing debt. Along with better economic growth prospects, it should also support further positive action by the rating agencies. We are working to make that happen.

Duncan Pieterse is the Director-General of the National Treasury.

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