UPDATE 1-Moody's lifts South Africa outlook to positive as debt pressures ease

Despite the improved ⁠outlook, ​Moody's said South Africa's ratings remained constrained by factors including weak fiscal and economic fundamentals, low growth potential and high inequality. Moody's added that continued fiscal discipline ⁠could eventually put the debt burden on a clearer downward path.

Credit rating agency ​Moody's on Friday revised its outlook on ​South Africa to positive ‌from stable, citing ​strengthening fiscal performance and progress on structural reforms.

It, however, maintained the country's long-term foreign and local currency issuer ratings ‌at "Ba2". South Africa's government welcomed the decision. Africa's most industrialised economy has, for more than a decade, grappled with steadily rising public debt, driven by weak growth, repeated support for state-owned ‌companies, and the impact of the COVID-19 pandemic.

While investor sentiment has improved on ‌signs of fiscal discipline from the finance ministry, the Iran war has clouded the growth outlook for net-energy importers such as South Africa, which remain highly vulnerable to rising fuel prices. The ratings agency ⁠said ​the positive outlook reflected ⁠a rising primary surplus, improving debt service costs, and expectations that government debt would stabilize in the ⁠near term and begin a gradual decline.

South Africa's heavy debt burden, interest payments for which eat ​away a large share of its revenue, is slowly easing as the government ⁠reins in spending, boosts tax intake, and pushes reforms to revive growth and curb borrowing. Despite the improved ⁠outlook, ​Moody's said South Africa's ratings remained constrained by factors including weak fiscal and economic fundamentals, low growth potential and high inequality.

Moody's added that continued fiscal discipline ⁠could eventually put the debt burden on a clearer downward path. S&P Global upgraded South Africa's ⁠sovereign rating to "BB" from "BB-" ⁠in November, handing the country its first credit rating upgrade in nearly 20 years.