Bank of America expects South Africa to secure further credit rating upgrades from Moody’s, Fitch and S&P over the next 12 months, but says investment-grade status is likely to remain out of reach, urging the National Treasury to adopt a fiscal rule to bolster the sovereign’s credentials.“Institutionalising a positive fiscal stance is critical. Recent success in reducing power cuts, reforms from the government of national unity, and the shift to a lower inflation target have improved market perceptions,” the American multinational lender said in a note.“However, these gains may prove temporary without stronger policy anchors. Introducing fiscal rules could help lock in credibility, reduce borrowing costs, and anchor a more sustainable debt trajectory.“So far, the appetite for binding numerical targets appears limited, but we think fiscal anchors can help South Africa bring debt-to-GDP down more firmly and create a path towards regaining an investment grade rating.”The comments by Bank of America come as the National Treasury is engaged in discussions on binding guidelines, with an announcement expected in October.The National Treasury’s current fiscal framework targets a fiscal deficit of 3% of GDP by 2028. However, this is a trajectory, not a rule. The country has a debt-to-GDP ratio of about 80%, up from 50% 10 years ago.Bank of America said there is much scepticism about the use of fiscal anchors in the National Treasury and among politicians and parliamentary stakeholders.“Fiscal rules are perceived as prioritising fiscal restraint over capital spending expansion. Markets like rules, especially when those rules are credible and provide a clear policy direction. For example, South Africa’s shift to a 3% inflation target from 4.5%,” Bank of America said. “The move was publicly debated in early 2025, when average 10-year bond yields were slightly above 10.5%. By the time the SARB had officially announced the change in July 2025 and the finance minister formally agreed in October 2025, 10-year bond yields had narrowed by about 150bp to close to 9%.“Since then, bond yields have fallen as low as 7.8%, reflecting central bank credibility, positive terms of trade and fiscal improvements. Then the energy shock caused markets to reprice, but yields are still better than before the change in the inflation target. This highlights the benefits of enhancing credibility and how markets reward positive policy moves.”Duncan Pieterse, director-general at National Treasury, told the Citi Emerging Markets and Credit Conference that public debt has now stabilised and is forecast to decline this year and over the medium term.“For the past three years our fiscal strategy has been anchored by two objectives: one, stabilising and then reducing the debt-to-GDP ratio; and, two, a rising primary surplus — where revenue exceeds non-interest spending,” he said.“These twin objectives have served as our de facto fiscal anchors and will be reinforced by a formal fiscal rule, announced at the medium-term budget policy statement in October.“This will provide a permanent, binding mechanism to lock in the fiscal gains achieved in recent years, strengthening policy credibility and further lowering our risk premium.”