South Africa and Junk Status

History, causes and consequences

What is junk status?

In layman’s terms, junk status is a term that refers to the credit rating of a country or entity below an investment grade as defined by a credit rating agency.

Junk status is also referred to as sub-investment grade, non-investment grade, or speculative grade.

Credit rating agencies and credit ratings

Credit rating agencies are companies that assess the financial strength and creditworthiness of, inter alia, corporations, companies, and countries. Put differently, the agencies rate a borrower’s ability to pay back debt by making timely principal and interest payments.

There are three major credit rating agencies: Moody’s Investors Service (Moody’s), Fitch Ratings (Fitch), and S&P Global Ratings (S&P), also known as Standard & Poor’s. Combined, these three agencies assign about 95% of all credit ratings globally.

Credit ratings

The credit rating agencies assign a value to indicate the credit risk pertaining to borrowers with regard to a financial obligation or particular debt, such as government bonds.  With regard to countries, ratings are referred to as sovereign debt credit ratings.

Credit ratings are not recommendations of the suitability or merit of investments, nor do they guarantee that default will not happen.

Credit agencies rate, inter alia, a country’s long-term foreign currency debt and its long-term local currency debt. This article focuses on the long-term global (foreign) debt ratings, also called international debt ratings.

Usually, a credit rating is supplemented with an outlook, such as positive, stable, or negative. A positive outlook implies that a rating may be raised, while a negative outlook means that a rating may be cut. A stable outlook indicates that a rating is likely to stay the same for the time being.

Basically, the rating scales for long-term debt ratings of the agencies are divided into two sections: investment grade and speculative grade (junk status). Each section comprises different tiers (levels) of risk.

Moody’s

Investment grade (10 tiers)

The highest investment grade level of Moody’s is Aaa, followed by Aa1, Aa2, Aa3, A1, A2, A3. According to Moody’s, the ‘obligations rated A are judged to be upper-medium grade and are subject to low credit risk.’

The lowest three investment grade tiers, Baa1, Baa2, Baa3, are categorised as follows: ‘Obligations rated Baa are judged to be medium grade and subject to moderate credit risk and as such may possess certain speculative characteristics, which is described as: ‘Extremely strong capacity to meet financial commitments.’

Speculative grade (Junk status) (11 tiers)

Moody’s highest rating level under junk status is Ba1, followed by Ba2, Ba3. Ba ratings are explained as follows by the agency: ‘Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.’

The Ba ratings are followed by B1, B2, B3, Caa1, Caa2, Caa3, Ca, and C as the lowest level, 21 levels down from the top investment grade level.

S&P

Investment grade (10 tiers)

S&P’s highest credit rating is AAA, followed by AA+, AA, AA-, A+, A, A-.

The lowest three investment grade levels, BBB+, BBB, BBB-, are described as follows: ‘Adequate capacity to meet financial commitments, but more subject to adverse economic conditions.’

Speculative grade (Junk status) (12 tiers)

The highest rating under speculative grade of S&P is BB+, with BB and BB- following. S&P’s description for BB-ratings is: ‘Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.’

The BB ratings are followed by B+, B, B-, CCC+, CCC, CCC-, CC, C, and D. The D rating is 22 levels down from S&P’s top investment grade tier.

Fitch

Investment grade (10 tiers)

Fitch’s highest credit rating is AAA, followed by AA+, AA, AA-, A+, A, A-.

The agency’s lowest three investment tiers are BBB+, BBB, BBB- with the following description: ‘BBB ratings indicate that expectations of default are currently low. The capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity.’

Speculative grade (Junk status) (13 tiers)

Fitch’s highest credit rating under junk status is BB+, followed by BB and BB-. Fitch categorises its BB ratings as follows: ‘BB ratings indicate an elevated vulnerability to default risk, particularly in the advent of adverse changes in economic conditions over time; however, financial flexibility exists that supports the servicing of financial commitments.’

The BB ratings are followed by B+, B, B-, CCC+, CCC, CCC-, CC, C, RD, and D. The D rating is 23 levels down from Fitch’s top investment grade level.

South Africa’s junk status history (1994 – 2025)

South Africa entered full junk status territory on March 27, 2025, when Moody’s downgraded the country to junk status, joining S&P and Fitch in this regard.

The following is a short overview of the ratings of the 3 major credit agencies since 1994 up to 29 April 2025.

Fitch

Fitch upgraded South Africa to the lowest tier of investment grade (BBB-) on June 27, 2000. Before this upgrade, the country was rated at the highest two levels of junks status, respectively BB and BB+ since September 1994.

The credit agency downgraded the country to junk status, BB+, with a stable outlook, on April 7, 2017.

South Africa was at investment grade from June 27, 2000 to April 7, 2017, almost 17 years. To be exact, a period of 6 128 days. The highest rating was BBB+, the agency’s third lowest investment grade rating.

As of October 2025, South Africa’s credit rating is BB with a negative outlook, the second highest tier of junk status and 2 notches below investment grade. This is the lowest rating since September 1994.

Since January 10, 2013, every rating, taking the outlooks into account, was a downgrade. As of April 2025, downgraded by 4 levels.

Moody’s

The highest Moody’s rating for the past 26 years was A3, the agency’s fourth lowest investment grade rating. This was the highest investment grade rating of all three credit rating agencies.

Although at different levels and with different outlooks, the country was at investment grade with Moody’s from October 1994 to March 27, 2025, almost 25 years and 6 months – exactly 9 307 days.

When the country was downgraded to the current junk status (Ba1, negative outlook) on March 27, 2025, it was the first time in the history of the new South Africa that Moody’s downgraded it to junk status. Ironically, 27 March was also the day the lockdown, due to the Covid-19 pandemic, started in South Africa. Ba1 is one notch below investment grade and the highest level of junk status according to the Moody’s credit ratings.

Moody’s downgraded the RSA almost 3 years after S&P and Fitch have done so in April 2017.

Standard & Poor’s

S&P upgraded South Africa to the lowest tier of investment grade (BBB-) on February 25, 2000. Before this upgrade, the country was rated at the highest two levels of junk status, respectively BB and BB+ since October 1994.

The credit agency downgraded the country to junk status, BB+, with a negative outlook, on April 3, 2017.

The highest S&P rating for the past 26 years was BBB+, the agency’s third lowest investment grade rating, with different outlooks.

Although at different rating levels, accompanied with different outlooks, the country was at investment grade from February 25, 2000 to April 3, 2017, more than 17 years. To be exact, a period of 6 247 days.

As of October 2025, South Africa’s credit rating is BB- with a stable outlook, the lowest rating since October 1994 and 3 notches below investment grade.

S&P was the first credit rating agency since 2000 to downgrade the country to junk status. Although, only 4 days before Fitch.

Since October 12, 2012, every rating, with the consideration of the outlooks, was a downgrade. As of April 2025, downgraded by 5 levels.

Reasons why the credit agencies downgraded South Africa to different levels of speculative  grade, also called junk status

Standard & Poor’s

April 3, 2017 (Credit rating: BB+, with negative outlook)

One of the agency’s main concerns was the late-night massive cabinet reshuffle by the former president, Jacob Zuma, on Friday, March 31. Minister of Finance, Pravin Gordhan, and his deputy, Mcebisi Jonas, were both ousted.

S&P warned that ‘divisions in the ANC-led government’ and ANC ’party divisions’:

• have ‘put policy continuity at risk,’ strengthening the possibility that ‘economic growth and fiscal outcomes could suffer.’
• ‘could delay fiscal and structural reforms.’

The agency further mentioned that businesses may adopt an approach to ‘withhold investment decisions that would otherwise have supported economic growth.’ Furthermore, ‘the country’s ‘longstanding skills shortage and adverse terms of trade’ are also reasons for the weak pace of economic growth, stating it ‘remains a ratings weakness.’

Moreover, the country is slow in implementing economic reforms, according to S&P.

November 22, 2017 (Credit rating: BB, with stable outlook)

S&P was still concerned about South Africa’s economic growth, citing: ‘… economic decisions in recent years have largely focused on the distribution – rather than the growth of – national income. As a consequence, South Africa’s economy has stagnated and external competitiveness has eroded.’

According to S&P, the country’s real per capita GDP growth rate averaged a decline of -0.7% over 2015 – 2018.

Other concerns mentioned by S&P were the increasing debt burden of the government, high level of unemployment, rising fiscal deficits, and massive contingent liabilities with regard to SOEs, such as Eskom.

April 29, 2025 (Credit rating: BB-, with stable outlook)

S&P cited the Covid-19 pandemic as the main reason for the downgrade: ‘The Covid-19 health crisis will create additional and even more substantial headwinds to GDP growth,’ S&P analysts mentioned and estimated that the country’s economy will probably decrease by 4.5% in 2025.

Fitch

April 7, 2017 (Credit rating: BB+, with stable outlook)

Fitch also stated that Zuma’s cabinet reshuffle on March 31 was the main reason, saying it ‘will weaken standards of governance and public finances.’

The agency was also concerned that ‘the reshuffle is likely to undermine, if not reverse, progress in state owned enterprises’ governance…’ and that debt of SOEs could compromise the government’s balance sheet.

April 3, 2025 (Credit rating: BB, with a negative outlook)

Fitch cited, inter alia, the following reasons: ‘… the lack of a clear path towards government stabilisation as well as the Covid-19 shock on public finances and growth.’

Moody’s

March 27, 2025 (Credit rating Ba1, with a negative outlook)

Moody’s cited the following, among others, constraints on the country’s economic growth:

• Structurally weak growth.
• Constrained capacity to stimulate the economy.
• The inevitable rise in government debt over the medium term.
• Unreliable electricity supply.
• Persistent weak business confidence.
• Investment as well as long-standing structural labour market rigidities.

Moody’s expected that the country’s fiscal deficit will increase in the 2025 fiscal year to around 8,5% of GDP. It estimated that the nation’s debt burden will increase from 69% of GDP at the end of fiscal 2019 to 91% in the 2025 fiscal year, inclusive of the guarantees to state-owned-enterprises (SOEs).

The agency also said the ‘unprecedented deterioration’ caused by the Covid-19 pandemic will worsen the country’s economic and fiscal challenges.

Some consequences of South Africa’s junk status

Junk status in a not so normal year

Before the Covid-19 pandemic, 2025 could be described as a normal year. As normal as a year can be in South Africa. The coronavirus, and the subsequent lockdown, locally and globally, have changed many things, also the way to consider the consequences of South Africa’s junk status.

The Covid-19 crisis has overshadowed the Moody’s, S&P, and Fitch downgrades, compelling investors to not only look at the credit ratings, but also at other indicators and measures, some of them unprecedented, implemented by the country to mitigate impact of the pandemic and lockdown.

Normally, one of the consequences of a downgrade is that interest rates increase, causing borrowing costs to rise, which makes the cost of living much more expensive. Conversely, to lessen the impact of the lockdown on the economy, the South African Reserve Bank (SARB) has cut its repo rate by 300 basis points to 3.5% so far in 2025 in an unprecedented process of ‘loosening of monetary policy.’

During normal times it is expected that a downgrade to junk status will cause higher inflation and a devaluation of the South African rand (ZAR). However, these are not normal times, as the following data will proof:

• The performance of the ZAR against the US dollar since the Moody’s downgrade
• On Friday, March 27, the day of the Moody’s downgrade, one US dollar was worth R17.635. On the next Monday, March 30, the ZAR devaluated to R17.933, a devaluation of about 30 cents.
• A week later, 3 April, when Fitch cut the country a further notch down, one greenback cost R19.052. The next Monday (April 6), one dollar cost R18.685, an improvement of 37 cents! This was an indication that the downgrade was already priced in.
• 189 bought one US dollar on April 29, the day S&P downgraded the nation further into junk status. The following day, one dollar was worth R18.555, a devaluation of about 36 cents.
• The ZAR reached its lowest level ever against the US dollar on April 23, R19.113. A devaluation of R5.10 since the beginning of the year. However, as of noon October 6, one US dollar was worth R16.614, still R2.60 down from R14.012 on January 2, but an improvement of R1.02 since March 27.
• Inflation since March 2025

Looking at the inflation numbers, it is clear that the effect of the lockdown has decimated the influence of the junk status ratings.

For example: The country’s inflation rate was 4.1% in March, 3.1% in April, 2.1% in May, 2.2% in June, 3.2% in July, and 3.1% in August, 100 basis points or 24.39% down from March.

Consequences for the government

In response to the Moody’s downgrade, National Treasury said that ‘the decision by Moody’s could not have come at a worse time’, mentioning that the country ‘is seized with containing the outbreak of the coronavirus.’

However, the National Treasury affirmed that ‘the government remains committed to implementing structural economic reforms to address the weak economic growth, constrained fiscus and the ailing state-owned companies.’

Minister of Finance, Tito Mboweni, echoed the affirmation of his department after a further junk status downgrade by Fitch on April 3, 2025, saying that ‘government continues to prioritise and implement measures to improve economic growth and setting government finances on a sustainable trajectory.’

Mboweni, National Treasury, and the government share an enormous responsibility to put all the commitments into practice and to address and rectify the issues that caused the credit agencies to downgrade the country to junk status. The saying, ‘the proof is in the pudding,’ is so true for this time in the country’s financial crisis. Indeed, the proof will, inter alia, be in:

• How the government will contain the impact of the Covid-19 pandemic and the lockdown and restore the country’s economy
• The changing of labour laws that constrain job creation.
• Reducing the shocking unemployment rate.
• The government’s ability to get rid of corruption.
• The desire and ability to separate party politics and government policy.
• The ability to implement structural reforms that would enhance economic growth.
• Solving the numerous problems at Eskom, reducing load shedding to an absolute minimum.
• Privatising state-owned enterprises (SOEs), or, where necessary, liquidating them.
• Implementing fiscal reforms to contain and reduce expenditure.

Government bonds

South Africa was removed from the FTSE Government Bond Index, prompting many overseas investment funds that track the index, and those funds that are only permitted to invest in investment grade bonds, to sell their South African bonds.

A massive outflow of funds was predicted, and, indeed, huge outflows occurred, but not to the amount that was expected.

However, due to their outstanding yields, government bonds are still in great demand. For instance, as of October 6, the South Africa 10Y Government Bond has a 9.570% yield.

Frequently Asked Questions

What is a junk status also called?

A ‘non-investment grade speculative’.

When did South Africa enter full junk status?

Junk status territory for S.A. was entered into on March 27 2025.

What are the  main reasons for South Africa’s junk status?

A weak economy and an unreliable power sector.

Are South African government bonds still in demand?

Yes, due to their outstanding yields.

Will the Rand ever recover?

It is possible once the pandemic is under control.