S&P Global Maintains South Africa’s Rating Amid Growing Uncertainty
S&P Global has affirmed that it expects to keep South Africa’s foreign‑currency sovereign rating at BB and the local‑currency rating at BB+, with a positive outlook. The agency notes, however, that the rating could be revised at its next review on 29 May 2026, depending on how the ongoing conflict in the Middle East influences key economic indicators.
Background: The November 2025 Upgrade
In November 2025 S&P upgraded South Africa’s sovereign rating for the first time in two decades. The upgrade was driven by:
- Higher‑than‑expected tax revenues that exceeded the 2025 budget forecast by roughly ZAR 12 billion.
- Primary budget surpluses averaging 0.4 % of GDP over the fiscal year.
- Reduced contingent liabilities from Eskom and other state‑owned enterprises after a series of restructuring measures.
The move followed the Financial Action Task Force (FATF) removing South Africa from its “grey list” in February 2026, signalling progress in anti‑money‑laundering and counter‑terrorism financing frameworks. FATF statement, February 2026.
How the Middle East Conflict Is Shaping the Outlook
The escalation that began when the United States and Israel launched strikes against Iran in late February 2026 sent shockwaves through global commodity markets. As a net importer of crude oil, South Africa felt the impact through higher fuel prices and a weaker rand.
Samira Mensah, head of S&P Global South Africa, explained in a Business Day interview on Monday that the conflict’s repercussions are visible in import‑related data and could affect the country’s growth trajectory:
“The war in Iran is actually having some impact on the South African economy and the conduits here could be seen in the import law.”
She added that if growth fails to meet the agency’s base‑case expectations, the outlook could be shifted from “positive” to “stable” while keeping the BB/BB+ ratings unchanged.
Economic Forecasts Under Pressure
The National Treasury’s February 2026 budget review projected:
- Gross borrowing stabilising at 78.9 % of GDP for 2026, with a gradual decline thereafter.
- Finance Minister Enoch Godongwana forecasting real GDP growth of 1.6 % for 2026, up from 1.1 % in 2025.
These assumptions are now being tested. The South African Reserve Bank, at its March 2026 Monetary Policy Committee meeting, left the repo rate unchanged at 6.75 % and highlighted upside risks to inflation, citing higher fuel costs as a primary driver. SARB MPC Statement, March 2026.
Inflation and Policy Response
The Reserve Bank has shifted its inflation target from a 3‑6 % band to a firm 3 % goal. According to S&P’s base‑case scenario:
- Consumer price inflation is expected to average 3.5 % in 2026 and 3.6 % in 2027.
- A downside scenario—should the Middle East conflict prolong—could push inflation up by an additional 2.3 percentage points, bringing it close to 5.8‑6.0 %.
Such inflationary pressure would likely feed through to higher debt‑service costs and could erode the fiscal gains achieved in late 2025.
Outlook and Key Risks
S&P Global’s modelling assumes that the Strait of Hormuz, a critical chokepoint for global oil shipments, will reopen by the end of April 2026. The agency updates its assumptions weekly as the situation evolves.
Mensah outlined three possible pathways:
- Base case: Gradual normalization of oil and gas production, with supply‑chain disruptions easing within three months; growth settles around 1.5 % GDP in 2026 and 1.7 % in 2027.
- Downside case: No growth in 2026 and sub‑1 % expansion in 2027, driven by sustained higher fuel prices and weaker investor confidence.
- Worst‑case: A protracted Iran conflict with regional escalation, potentially dragging global growth and amplifying external shocks to South Africa’s current account and fiscal balances.
In Mensah’s words, the agency could either retain the positive outlook or revert to a stable outlook while maintaining the BB/BB+ ratings, pending a clearer picture of how the conflict resolves.
Conclusion
South Africa’s sovereign rating remains underpinned by recent fiscal improvements and FATF compliance, but the external shock from the Middle East conflict introduces material uncertainty. Investors and policymakers will watch the upcoming May 2026 S&P review closely, as well as domestic inflation data and the Reserve Bank’s policy moves, to gauge whether the country can sustain its upward rating trajectory amid a volatile global environment.
