South Africa is heading in the right direction for its first credit-rating upgrade by Moody’s Ratings since 2009, provided the country’s fiscal performance continues to improve.

The agency, which rates South Africa Ba2 — two notches below investment grade — revised South Africa’s credit outlook to positive from stable in May. It says the country has reached an inflection point after stabilising its debt and delivering pro-growth economic reforms.

“We could upgrade South Africa’s rating if fiscal performance continues to improve,” Evan Wohlmann, a vice president at Moody’s, told a virtual media briefing on Tuesday. The assessment would hinge on confidence in how the credit profile will evolve, he said.

Finance Minister Enoch Godongwana delivers his mid-term budget review on October 21 and is expected to show continued growth in the country’s primary budget surplus – a gauge of how much revenue exceeds non-interest expenditure – amid higher income.

Wohlmann said the baseline forecast was for debt that peaked in the last fiscal year at 87% of gross domestic product to gradually decline to 84% of GDP by the end of the decade, supported by an uptick in economic output.

Africa’s largest economy has expanded by less than 1% on average over the past decade. But structural reforms are beginning to deliver, with Nedbank Group predicting growth will edge up to 1.9% in the next two years with 2.5% possible by 2030.

The country holds municipal elections on November 4 that may result in a further loss of support for the African National Congress, bringing pressure to bear on President Cyril Ramaphosa who is due to step down as the party’s leader at the end of next year before general elections in 2029.

Still, Moody’s sees a low risk of politics pushing South Africa away from its reform path.

“We see the risk of a reversal in policy from the forthcoming electoral cycle as limited,” Wohlmann said, citing South Africa’s shift to a coalition government in 2024 after the ANC lost its parliamentary majority amid public anger over high unemployment and poor service delivery.

Moody’s track record shows it upgrades about 60% of the sovereign credits that it assigns with a positive outlook.

Still, restoring South Africa’s investment-grade rating may take some time. There were eight years between Moody’s initially downgrading South Africa, when it was lowered to Baa2 from Baa1 in 2012, and the cut that took it below investment grade in 2020.

Lucia Villa, Moody’s senior vice president for ratings, said that based on past experience, there were roughly twice the number of annual notches in a downgrade cycle, or consecutive negative rating actions, versus in an upgrade cycle on average.