S&P keeps SA on a positive leash: Rational reality behind treasury’s victory lap

Key topics:S&P affirms SA rating; positive outlook with fiscal improvementWeak growth forecast (1.2%) due to inflation, energy shocks, ratesReforms and GNU stability help, but Transnet and debt remain risks.BizNews Reporter.It’s a rare day when our country finds itself exclusively in positive territory globally. According to the National Treasury, South Africa is currently one of only two G20 nations—alongside Italy—to hold a positive outlook from S&P Global Ratings. On Friday, S&P affirmed the country's long-term foreign-currency sovereign credit rating at 'BB' and its local-currency rating at 'BB+', while keeping the positive outlook firmly intact.The National Treasury is, understandably, taking a well-deserved victory lap. Duncan Pieterse, its Director-General, rightly noted that the affirmation reflects tangible progress in restoring the health of our public finances, even amid significant geopolitical upheavals. The state has now delivered its third consecutive fiscal year of rising primary surpluses, a feat driven by fiscal revenue outperforming budgeted targets in 2025/26. Pieterse highlighted that with both S&P and (earlier) Moody's maintaining a positive outlook on South Africa, the market signal is deeply encouraging. This comes on the heels of S&P's historic November 2025 upgrade, the first of its kind from a major global rating agency in over 16 years..Read more:.SA's energy crisis worsens due to aging infrastructure and overregulation.But before we pop the corks, a rational investor must look beyond the Treasury’s celebratory media statement and dive into the meat of S&P's full report. The detailed assessment paints a picture of a nation walking a macroeconomic tightrope. Yes, the fiscal trajectory is steadily improving, but the global and domestic environment remains incredibly unforgiving.Indeed, S&P lowered its near-term real GDP growth forecast for SA in 2026 to a sluggish 1.2%, though it expects a slight rise to an average of 1.7% over 2027-2029. Why the muted growth? The culprit isn't just domestic policy; it's imported inflation. The energy price shock stemming from the ongoing Middle East conflict has driven fuel costs higher, pushing consumer price inflation to 4.0% in April 2026. Consequently, S&P expects the South African Reserve Bank to raise interest rates further this year to contain second-round effects, following last week's 25-basis-point hike. Higher rates and sticky inflation will inevitably weaken consumer demand. While S&P notes this will be partially offset by consumption boosts from the new two-pot retirement system, the overall economic engine is sputtering. Ultimately, S&P’s positive outlook is explicitly conditional on the easing of the current energy price shock and continued fiscal consolidation.On the structural reform front, there is undeniable momentum, particularly under Operation Vulindlela Phase II. S&P acknowledged the massive strides made in the electricity sector. We’ve enjoyed an entire year without load-shedding, and Eskom miraculously posted its first profit in eight years.However, the underlying machinery of the state remains rusty. S&P bluntly points out that while electricity supply has stabilised, logistics bottlenecks at Transnet—our crucial rail lines and ports—continue to strangle economic potential, particularly for exporters. While 11 private-sector operators have been shortlisted to run rail routes, Transnet continues to bleed cash and relies heavily on government debt guarantees. Furthermore, Eskom’s turnaround remains threatened by mounting arrears from dysfunctional municipalities.Despite these intense pressures, the Treasury deserves immense credit for its fiscal juggling act. S&P’s decision actively recognises the stronger revenue performance, which has enabled the state to maintain absolute fiscal discipline while implementing targeted measures to shield vulnerable households. Temporary fuel levy reductions were cleverly rolled out to cushion the blow of global energy prices. Crucially, these interventions remained strictly consistent with the existing fiscal framework, ensuring the medium-term consolidation path wasn't compromised. Looking ahead, S&P expects this expenditure restraint to continue through 2029/30, driving a much-needed decline in government debt as a percentage of GDP..Read more:.S&P upgrade ends 16-Year wait as Eskom, fiscal reforms pay off.The unspoken hero of this macroeconomic stabilisation is the Government of National Unity (GNU). S&P credits the broad coalition for maintaining policy continuity and advancing the reform momentum. Despite the inevitable political noise and the looming 2026 municipal elections, the GNU has held together. S&P makes it clear: if the GNU were to collapse and less-reform-minded factions took the reins, it would spell disaster for our growth and fiscal consolidation.So, what is the rational takeaway?The rating affirmation proves we have officially stopped digging the hole and put the shovels aside, for now, at least. The Treasury's commitment to reducing the debt-to-GDP ratio over the medium term is demonstrably on track. However, as S&P noted, economic growth remains undeniably moderate in the near term due to global headwinds and tighter financial conditions. A 1.2% growth rate in 2026 is simply insufficient to move the needle on our 33% unemployment rate or materially raise living standards.Now comes the hard part: climbing out. It requires ruthless execution of infrastructure partnerships, strict adherence to the Treasury's targets, and the preservation of the fragile political coalition. South Africa is undeniably on the right path, but the margin for error remains effectively zero. .Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here.

S&P keeps SA on a positive leash: Rational reality behind treasury’s victory lap

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