South Africa received some welcome news after the credit ratings agency S&P decided to upgrade both SA’s foreign currency long-term sovereign credit rating to ‘BB’ from ‘BB- ‘and local currency long-term sovereign credit rating to ‘BB+’ from ‘BB’. Its outlook remains positive.
Another agency, Fitch affirmed South Africa’s sovereign rating at BB- with a stable outlook. The agency said the government had reaffirmed its commitment to gradual consolidation and noted that it applies conservative assumptions about interest-cost savings from disinflation, emphasising that South Africa’s long average debt maturity means a decline in yields will take time to filter through to funding costs.
In October, the Financial Action Task Force (FATF) announced that it had delisted South Africa from its “grey list” of jurisdictions under increased monitoring, after the country had implemented all twenty-two reforms required by the FATF.
Statistics South Africa (Stats SA) also announced that the country’s official unemployment rate dropped to 31.9% in the third quarter of 2025, down from 33.2% in the previous quarter, boosted by an increase in construction activities.
Government sees these developments as an affirmation of its key government interventions through Operation Vulindlela, both Phases I and II. Operation Vulindlela is a joint initiative of the Presidency and National Treasury to accelerate the implementation of structural reforms and support economic recovery. It aims to remove bottlenecks to economic recovery through regulatory changes and partnerships in network industries, including electricity, water, transport and digital communications. The latest Operation Vulindlela II report shows that significant success has been achieved by government, especially in getting some State-Owned Enterprises (SOEs) back on track.
Government has identified SOEs as key to its infrastructure development and drivers of economic growth. To get SOEs to efficiently play that role, issues of governance, management, and poor performance had to be addressed. Key board and management changes at Eskom and Transnet, for instance, have seen them come back from the brink. Eskom is now close to 190 days without loadshedding and has returned to profitability for the first time in 8 years. Transnet is also on the road to recovery seeing freight volumes increasing to over 160 million tons in 2024, a 5.5% increase compared to prior financial years – reversing the downward trend in volumes. Various initiatives are underway to enable private sector participation (PSP) in the logistics system, including through open access to the freight rail network and concessions, joint ventures and other partnership arrangements for strategic rail corridors and port terminals.
Challenges Remain
South Africa’s risk of falling into a debt trap is high, as its debt-servicing costs are compounding at a faster rate than the economy. The country’s debt servicing costs are expected to reach 5.2% of GDP in 2025, up from less than 3% of GDP a decade ago. To help ease the pressure on the limited fiscal pool, government has had to borrow more or increase taxes on already burdened employed South Africans. This is unsustainable.
South Africa’s economy has struggled to keep pace with the increases in inflation and unemployment for the past 5 years. The unemployment rate has increased by between 3.5 and 3.7% since 2020, while the inflation rate increased by an average of 5% over the same period.
In contrast, the economy has grown less than 2% since 2020. This has created problems that have seen government having to add more people to its social security net. A Special R350 COVID-19 Social Relief of Distress that was initially scheduled to run for only 6 months in 2020, has now become a permanent expenditure in the country’s budget. Since 2020, the grant has cost the fiscus over R100 billion and R35.2 billion is budgeted for the current 2025/2026 financial year.
Government still has a lot of work ahead of it to plug the leaks arising from the increasing incidents of illicit trade. Following the delivery of the Medium Term Budget Policy Statement (MTBPS) SARS Commissioner Edward Kieswetter noted that the illicit economy was estimated to account for between 10% and 15% of GDP in 2024. Fighting illicit trade will not only add revenue to the fiscus, but it will also mean that the risk of increasing the tax burden on South Africans will be lessened.
However, there is more to be done
Continued prudent fiscal management, coupled with revenue-enhancing interventions and expenditure prioritisation, will be critical to avoid a debt trap scenario.
Although the Q3 2025 unemployment rate declined to 31.9%, structural challenges remain entrenched. Youth unemployment remains significantly higher than the national average, reflecting skills mismatches, low labour absorption, and limited access to productive sectors. Informal sector participation is high, which constrains tax revenue and social protection coverage. Without targeted interventions in education, skills development, and industrial policy, the economy will struggle to convert growth into meaningful employment.
Equally, the country’s social fabric remains strained by persistent inequality. While social grants provide critical relief, they also place pressure on the fiscus. Expanding human capital through education, skills development, and targeted economic empowerment programs is essential for sustainable growth. Failure to address inequality risks social unrest and undermines confidence in both government and markets.
Yet, government’s continued vigour and will to implement the necessary reforms will yield results in the years to come. Already, there are actions taken in several sectors, including the invitation for the private sector to play an increased role in key industries. Strengthening the credibility of regulatory bodies, streamlining licensing and approvals, and safeguarding contract sanctity will be key to sustaining private sector engagement. In that sense, the issued Request for Information (RFI) to optimise the South African Post Office (SAPO) by the Department of Communications and Digital Technologies is a positive move. The purpose of the RFI is to seek proposals on restructuring, asset optimisation, and partnership models that bring investment, operational value, and improved efficiency across SAPO’s services. SAPO has been surpassed by private players by failing to modernise and commercialise key parts of its operations, mainly due to political interference and an unclear funding model. This move may help re-establish SAPO as the primary postal and courier services provider in the country, given its extensive network and infrastructure.
For SOEs in general, contingent liabilities remain a significant fiscal risk. Future governance failures could reverse progress. It is critical that SOEs maintain rigorous performance monitoring, transparent reporting, and enforceable accountability mechanisms to prevent backsliding and ensure sustainable contribution to economic growth.
That government is currently implementing the Passenger Rail Agency of South Africa (PRASA) Rebuilding and Recovery Programme that involves a comprehensive recovery and modernisation plan for the country’s commuter rail services, which had severely deteriorated due to infrastructure neglect, corruption, vandalism and operational failures, should be welcome.
Infrastructure improvements in electricity, rail, and ports are enabling growth, but sectoral bottlenecks persist in healthcare, education, ICT, and digital services. Provinces with weak institutional capacity continue to lag, highlighting the importance of regional development strategies and private sector participation to ensure inclusive growth across the country.
In conclusion
The reforms initiated by government have addressed some concerns that were raised by analysts and economists as hampering the flow of investments and the country’s growth prospects. Loadshedding is no longer a pain point and there is now stable electricity supply. Some bottlenecks in rail transport and ports have been eased, supporting faster processing and movements of goods to and from the country.
An acceleration of the Operation Vulindlela II reforms will be vital to strengthen recovery. The focus on fixing ailing municipalities through reforming the municipal funding model would help ensure sufficient financial and human resources for municipalities to effectively operate.
In the main, SOEs are key drivers of the economy, and their recovery should remain priority. Actions by the government thus far have seen key SOEs such as Eskom and Transnet record great progress. However, governance failures through politicisation, if not avoided, could reverse progress. This is crucial to ensure that they no longer rely on bailouts, and they maintain their competitiveness for their sustainable contribution to economic growth.
