Tax windfall, lower debt spark hope for ratings upgrade

Credit ratings and encouraging debt-to-GDP data are setting the stage for finance minister Enoch Godongwana to table a positive medium-term budget policy statement (MTBPS) on Wednesday, according to analysts.

Godongwana will table the statement during a joint sitting of parliament this week amid broad economic difficulties and cost-of-living pressures as a result of the US-Iran war .

Still, a note from Bank of America by Tatonga Rusike, a sub-Saharan Africa economist with Merveille Paja, the bank’s sovereign credit strategist, says South Africa’s debt-to-GDP is also coming down, and low funding risks and a potential investment-grade local currency rating bode well for the country.

“We estimate 2026/27 revenue could exceed budget assumptions by R70bn when the medium-term budget policy statement is released on 21 October, driven largely by stronger corporate tax collections in the gold and precious metals sectors.

“Expenditure growth is running above Treasury projections but should be more than offset by this revenue windfall, supporting our 3.5% of GDP deficit forecast for 2026/27 versus the 3.7% government target.”

The note said an upside scenario where spending remains contained, the deficit could reach 3.0% of GDP. Treasury has already secured around 60% of its FY2026/27 financing requirement after only five months, while the external funding programme has effectively been completed.

“Strong borrowing execution, lower debt-service costs and limited near-term financing risks reinforce the case for a gradual decline in the debt-to-GDP ratio to 77% this year from 79% the previous year.”

With Moody’s and S&P expected to issue sovereign credit rating updates in late November and Fitch expected to issue theirs in December, Rusike and Paja said Moody’s is the most likely to act, with a potential upgrade to Ba1, while an S&P upgrade to BB+ remains a closer call.

An upgrade to BB+ on the foreign-currency rating by S&P could result in a BBB- local-currency rating if S&P maintains the existing one-notch differential, Rusike said.

“This would not restore investment-grade foreign-currency status, but it would represent an important credit milestone and could reopen discussions about eligibility for investment-grade local-currency benchmarks. The significance of the step may also encourage S&P to wait for stronger evidence before acting.”

Fitch upgraded South Africa to BB in June 2026 and assigned a stable outlook, and the Bank of America anticipates that the agency has less reason to act again in the near term. An upgrade to BB+ could come in 2027 if primary surpluses strengthen and debt-service costs continue to moderate.

PSG chief economist Johann Els said he expects a good, fiscally conservative MTBPS, which may result in ratings upgrades later this year or early next year by Moody’s and/or S&P.

“The tax overrun could reach R50bn or more. This is a significant improvement on the numbers in the February budget.