Godongwana’s Budget holds hope for credit ratings upgrades, but it's still a long haul

Finance Minister Enoch Godongwana’s Budget on Wednesday, 25 February 2026, has been cheered by the markets and paves the way for potential upgrades from ratings agencies over the next couple of years as South Africa begins the arduous climb back to coveted investment grade status.

Having pulled SA from the brink of a steep fiscal cliff, the minister can take a bow. But Godongwana – an ANC policy wonk with a deep understanding of markets and capital – has unfinished business.

Faster rates of economic growth have long been his top priority, and that remains elusive. But shoring up fiscal credibility in the face of unforgiving investors, markets and ratings agencies is a crucial first step towards that goal.

“Godongwana delivered a Budget that did exactly what markets needed it to do: it confirmed the fiscal consolidation story ... and signalled that SA’s hard-won credibility is not being squandered,” said Lullu Krugel, PwC SA Chief Economist.

“The rand firmed ahead of and through the speech, and the benchmark 2035 government bond yield fell to around 7.9% – a market telling you, in the clearest language it knows, that this Budget passed the credibility test.”

And the ratings agencies may now cautiously follow – though not immediately – with upgrades to SA’s credit profile. This hopeful trend began in November last year when S&P raised it a notch, the first upward move in almost two decades.

Read more: Eskom lights the way to SA’s first credit ratings upgrade in 20 years

“We see a high probability of another upgrade by S&P this year, but imminent positive rating action by Moody’s and Fitch cannot be taken for granted,” said Dr Elna Moolman, Standard Bank Group Head of SA Macroeconomic Research.

Once a sovereign credit rating falls into “junk status”, it takes years to claw back the credibility required for an “investment grade” ranking and the boost to investor confidence, access to capital, and lower borrowing costs that brings.

SA’s descent into junk began in April 2017 when then then president Jacob Zuma fired the late Pravin Gordhan from the post of finance minister and replaced him with the tainted Malusi Gigaba.

That prompted a downgrade to junk by S&P, and by 2020 SA’s status on the trash heap was complete when Moody’s pulled the trigger.

Read more: Moody’s dispenses with SA’s investment grade fiction, the descent into junk is complete

And here we sit six years later still languishing in the “sub-investment” category, with one upgrade finally achieved and others now a possibility only because a fiscal disaster has been averted.

“Credit ratings upgrades are expected from S&P (currently BB) in the next 18 months and by Fitch (BB-) and Moody’s (BB equivalent) over three years if debt/GDP nears 75% as economic growth accelerates to 3.0% by 2030/31,” said Annabel Bishop, Chief Economist at Investec.

Big if

That of course is a big IF and the Treasury does not have much wriggle room. SA’s debt has stabilised at 78.9% of gross domestic product (GDP) – a first in 17 years – and it is seen declining at a steady rate after that.

But there is still skepticism, and if such targets are not reached the ratings agencies will take notice.

“Although we expect the government debt ratio to decline in 2026/27 FY, our projections continue to point higher over the medium term, with debt levels expected to reach 80% of GDP by 2028,’ said Jee-A van der Linde, Senior Economist at Oxford Economics Africa.

“The reality is that SA needs to run primary surpluses of 1%-2% of GDP forever to maintain debt stability. With near-term fiscal pressures easing, we argue that the biggest near-term risk is complacency, while maintaining that long-term fiscal risks remain elevated.”

Others are more scathing in their assessment.

“This Budget did very little to promote a credit ratings upgrade. Households and businesses are so trauma bonded to this government and its bad policies, that anything that is ‘less bad’ is classified as good news and great. I’m afraid our standard of what good policy looks like has slipped,” George Glynos, head of research at ETM Analytics, told Daily Maverick.

And the missing piece in this puzzle – one that would really grab the ratings agencies’ attention – is stronger economic growth that goes well beyond the sluggish 1.6% that the Treasury forecasts for 2026.

Upgrades, because of the confidence lift and investment flows they attract, can boost growth. But they also reflect growth in a chicken-and-egg kind of way. And SA needs to get cracking.

“Passing the credibility test and solving the growth problem are not the same thing. SA has earned the right to be believed. Now it must earn the right to grow,” noted PwC’s Krugel. DM