Finance Minister Enoch Godongwana. According to EY, the Fitch Ratings upgrade reflects growing international confidence in South Africa’s efforts to improve fiscal sustainability and implement structural reforms, particularly in the energy and logistics sectors.
Image: Armand Hough/Independent Newspapers
South Africa’s recent sovereign credit rating upgrade by Fitch Ratings is a significant endorsement of the country’s fiscal discipline and reform agenda.
However, businesses should not expect an immediate economic turnaround as higher borrowing costs and weak domestic demand continue to weigh on growth, according to EY’s June 2026 Macroeconomic Outlook.
Fitch upgraded South Africa’s long-term foreign and local currency credit ratings to BB from BB- on earlier this month, marking the agency’s first upgrade of the country in almost 21 years.
The move follows positive ratings actions from other major agencies, including an upgrade by S&P Global Ratings in late 2025 and a positive outlook from Moody’s Ratings.
According to EY, the upgrade reflects growing international confidence in South Africa’s efforts to improve fiscal sustainability and implement structural reforms, particularly in the energy and logistics sectors.
However, the professional services firm cautioned that the positive ratings action does not eliminate the immediate pressures facing the economy.
“While the upgrade is a welcome validation of reform progress, it does not change the fact that near-term growth will remain constrained by higher borrowing costs and subdued domestic demand,” said Angelika Goliger, EY Africa chief economist.
The ratings improvement comes against a backdrop of a challenging global economic environment, with growth forecasts being revised downward internationally and inflationary pressures re-emerging domestically.
Fitch cited South Africa’s improved fiscal position, including sustained primary budget surpluses, stronger revenue collection and disciplined expenditure management, as key reasons for the upgrade. The agency also noted that the country’s debt-to-GDP ratio is considerably lower than previously anticipated when it downgraded South Africa in 2020.
EY said the upgrade could gradually improve investor sentiment and contribute to lower risk premiums over time, potentially easing financing conditions for government and the private sector. However, these benefits are expected to materialise only gradually.
At the same time, inflation remains a concern. Headline consumer inflation accelerated to 4.0% year-on-year in April, driven largely by rising fuel costs as global oil prices hovered near $100 a barrel.
The inflationary pressures prompted the South African Reserve Bank (Sarb) to raise the repo rate to 7.0% in May, while signalling that interest rates are likely to remain elevated for an extended period.
“The re-acceleration in inflation, driven largely by imported fuel costs, has forced the Sarb into a more pre-emptive stance. We expect rates to stay higher for longer than previously anticipated,” Goliger said.
Despite the difficult environment, South Africa’s economy expanded by 0.5% quarter-on-quarter in the first quarter of 2026, marking a sixth consecutive quarter of growth.
Nevertheless, EY noted that the recovery remains uneven, with household spending and private investment still subdued and manufacturing activity continuing to contract.
The report highlighted varying implications across sectors.
In the financial sector, banks and corporates may eventually benefit from improved access to capital and lower risk premiums as investor confidence strengthens. However, higher funding costs and tighter liquidity conditions are expected to remain a challenge in the short term.
Infrastructure projects could also face pressure from elevated borrowing costs and higher fuel-related input expenses, potentially affecting project viability despite continued reform momentum.
Meanwhile, consumer goods companies and industrial firms are likely to continue grappling with weak export demand, rising operating costs and restrained consumer spending throughout 2026.
EY said businesses in these sectors will need to focus on operational efficiency and pricing strategies to protect margins.
“For businesses, the key takeaway is that stability in the macro framework is improving, but operational resilience and cost discipline will be critical through the rest of 2026,” Goliger noted.
Looking ahead, EY said the longer-term benefits of the Fitch upgrade will depend on government’s ability to maintain fiscal discipline, sustain reform implementation and manage inflation risks in an increasingly uncertain global environment.
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