Moody’s: High borrowing costs in SA, while Fitch keeps rating stable

Rating agency Moody’s says structural weaknesses are keeping borrowing costs high in South Africa and will take a long time to fix. South Africa runs the risk of deteriorating further due to the high debt servicing cost on its government debt and its effect on domestic expenditure.

According to a Moody’s report on credit conditions in South Africa, Nigeria and Kenya, policy and market constraints are keeping borrowing costs high.

“Limited equity capital and high debt costs remain key barriers, despite access to funding broadening over time.

“Three of the largest markets, South Africa (Ba2 stable), Kenya (Caa1 positive) and Nigeria (B3 stable), face a combination of structural weaknesses which keep borrowing costs high and will take time to address.”

Moody’s says that more effective policy frameworks would support lower debt financing costs. “Borrowing costs are high across the board, although debt costs in South Africa are lower than in the other two markets.

“Debt costs for banks, nonfinancial companies and sovereigns increased in all three markets alongside higher policy rates during the past five years, but banks withstood the increase by actively repricing assets. While concessional lending from development partners helps lower foreign currency debt costs, it has not fully offset high local and foreign market interest rates.

ALSO READ: SA’s economic growth outlook growing increasingly dim

Moody’s points out SA has higher borrowing costs than its emerging market peers

“Despite advanced financial markets, South Africa has higher borrowing costs than its emerging market peers, but lower borrowing costs than frontier markets like Kenya and Nigeria. All sectors benefit from deep financial markets and effective monetary policies, but costs are still higher than in many major emerging markets because of economic and fiscal constraints.”

Moody’s warns that without improvements, South Africa risks continuing a negative spiral where high interest rates aimed at attracting inflows amid subdued growth limit domestic investment and further hinder economic prospects.

South Africa’s borrowing costs are lower than those of frontier markets like Kenya and Nigeria, thanks to its deep financial markets and sound economic policies, including monetary policy transmission channels.

ALSO READ: Moody’s upgrades South Africa’s outlook to stable

SA borrowing costs are lower, but Moody’s also notes chronic economic and fiscal issues

However, Moody’s points out that real interest rates, including long-term rates, are high compared to those of other major emerging markets, despite subdued economic growth. “Weak business sentiment, limited competition in domestic markets and structural fiscal issues are keeping interest rates high to attract capital inflows. The high cost of market funding in local currency affects all sectors.”

South Africa’s developed financial markets remain a key strength despite the country’s chronic economic and fiscal issues, Moody’s says. “Its financial markets are crucial to providing debt financing from the relatively large pool of domestic savings and also to attracting foreign investment.

“Diverse investment products and deep financial markets anchor borrowing costs and extend the local currency yield curve, or the issuance of bonds across short and long maturities. However, South Africa’s foreign currency borrowing costs remain influenced by its relative creditworthiness, which partly reflects the persistent credit constraint of high public sector indebtedness, including contingent liabilities from state-owned enterprises.

ALSO READ: Fitch Ratings keeps SA rating at BB- but warns of low GDP growth

Fitch sees constraints, but also favourable government debt structure

Meanwhile, National Treasury says government notes Fitch’s decision to affirm South Africa’s long-term foreign and local currency debt ratings at ‘BB-’ and maintain the stable outlook.

According to Fitch, South Africa’s credit rating is constrained by several factors, including low real gross domestic product (GDP) growth, high poverty and inequality levels, a high and rising government debt-to-GDP ratio and a rigid fiscal structure that hampers budget deficit reduction.

However, Fitch points out, the ratings are supported by a favourable government debt structure with long maturities and mostly local currency denominated, strong institutions and a credible monetary policy framework.

“The government of national unity (GNU) continues, under Operation Vulindlela phase 2, to implement a reform agenda. Reforms focused on fixing network infrastructure, such as electricity, logistics, water, and digitalisation, alleviated load shedding and ended the decline in freight volume transported, contributing to Fitch’s forecast of a modest increase in real GDP growth.”

ALSO READ: ‘It’s like deciding whether SA is in C-Max or medium prison’ – economist on SA’s Fitch rating

Treasury outlines plans to grow economy ahead of MTBPS

Treasury says government’s economic growth strategy will continue to focus on maintaining macroeconomic stability to reduce living costs and grow investment, executing reforms to promote a more dynamic economy, building state capability in core functions and supporting growth-enhancing public infrastructure investment.

“Over the medium term, government will invest over R1 trillion in infrastructure, and reforms will make it easier for the state and the private sector to invest in roads, rail, energy and water. Additionally, major reforms to state spending and the budget process are under, including the implementation of targeted and responsible savings across government.

“Further details will be provided in the Medium-Term Budget Policy Statement (MTBPS) on 12 November 2025,” Treasury says in a statement.