Fitch upgrade is a starting point, not the finish line

Last Friday’s Fitch upgrade is the best news South Africa’s sovereign credit profile has received in a long time. The first upgrade from Fitch in nearly 21 years, following S&P’s November 2025 move and Moody’s positive outlook, means all three major agencies now rate South Africa at BB – two notches below investment grade.

National Treasury deserves direct credit: the upgrade reflects prudent fiscal management and fiscal consolidation, with debt-to-GDP levels well below what Fitch anticipated when it downgraded the country in 2020. South Africa has moved from consistent fiscal deficits to primary surpluses, improved revenue collection and controlled expenditure. That is a genuine achievement, and the Treasury team has earned the recognition.

But South Africa should resist the temptation to treat a BB rating as a final destination, and rest on its laurels.

Fitch projects real GDP growth of just 1.1% in 2025, rising to 1.4% by 2027, against a BB-peer median of 4%. In other words, South Africa’s growth trajectory runs at roughly a third of what peers at its own credit tier are delivering. This is not a temporary shortfall caused by external shocks. It is a structural condition that has persisted for nearly two decades. GDP per capita in 2025 was lower in real terms than it was in 2007 and 2008. The economy has not grown fast enough, for long enough, to lift living standards. Annual growth that struggles to sustain even 1.5%-2% is not a platform for development – it is managed decline at a slower pace.

The impediments to growth

Fitch acknowledged this directly. Supply-side constraints in energy and logistics have eased with structural reforms, and that should enable growth to moderately increase in coming years. Load-shedding relief and Transnet’s partial stabilisation are improvements. But they are also the floor of what was required, not the ceiling of what is possible.

South Africa’s interest-to-revenue ratio remains high, at 19% in 2027, against a BB-peer median of 11%. Nearly one rand in five of government revenue services debt rather than funding schools, infrastructure or security. That ratio constrains every spending decision government makes and will do so for years. Fiscal consolidation has slowed the deterioration; it has not reversed the underlying problem.

The structural impediments to faster growth are well known and insufficiently addressed. Labour market rigidity, including centralised bargaining that prices SMEs out of formal hiring, keeps unemployment above 30% on the narrow definition and closer to 40% on the expanded measure. The Employment Equity Amendment Act introduces new compliance burdens at the precise moment the economy needs every incentive it can get to hire. Crime and infrastructure theft cost the economy billions annually and deter the fixed investment that growth requires. State-owned enterprises remain a fiscal drag and a service-delivery failure combined. Grid constraints, water system deterioration and port inefficiency are active ongoing costs to output.

Confidence or complacency?

Investment grade is two notches away; the government expects further reviews from Moody’s and S&P within the next 12-18 months. Those reviews will be conducted against an economy that, on current trajectory, grows at 1.4% in a world where comparable sovereigns grow at four times that rate. While fiscal prudence is necessary, it is not sufficient to achieve real growth and rising living standards on its own. Ratings agencies upgrade sovereign balance sheets; investors allocate capital to economies where the fundamentals support returns. South Africa’s fundamentals, among which are labour costs, regulatory complexity, infrastructure reliability and rule of law risks, remain obstacles that a BB rating does not dissolve.

While National Treasury has done its part, the rest of government has not kept pace. The test now is whether Friday’s upgrade generates the political confidence to deepen reform, or the political complacency to slow it. South Africa has lost two decades of per-capita growth. There is no version of a credible recovery that does not require faster, deeper structural change – in the labour market, in network industries, in the criminal justice system, in the regulatory environment that determines whether businesses hire, invest and expand.

The Fitch upgrade is welcome, but it is also insufficient. Two notches from investment grade is not investment grade, and 1.4% growth is not yet a country reclaiming what it lost.

Chris Hattingh is the executive director of the Centre for Risk Analysis.

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