South Africa’s 2025 MTBPS Signals Debt Stabilisation and a Shift Toward Growth Investment
By Hugh Hacking, Executive Head, Structured Investments and Annuities, Momentum Corporate
South Africa’s 2025 Medium Term Budget Policy Statement (MTBPS) struck a noticeably positive and pragmatic tone, signalling the government’s renewed commitment to fiscal sustainability and a shift from consumption-led spending to growth-enhancing investment.
A key takeaway from the statement is the National Treasury’s commitment to stabilising government debt. Finance Minister Enoch Godongwana announced that debt is expected to stabilise at 77.9% of GDP in 2025/26 – marking the first projected halt in debt growth since the 2008 financial crisis and reversing a 15-year upward trend.
A primary budget surplus of R68.5 billion (0.9% of GDP) is expected this year and is forecast to grow over the medium term, laying the foundation for meaningful debt reduction. The overall budget deficit is also expected to narrow from 4.5% of GDP in 2025/26 to 2.7% by 2028/29 – a level last seen more than a decade ago.
Improved SARS tax collections delivered R19.3 billion above initial estimates, strengthening the fiscal position without additional tax hikes. Lower interest rates have also reduced projected debt-service costs, easing pressure on the fiscus and freeing up funds for critical services.
A central feature of the MTBPS is the deliberate reallocation of spending toward capital formation. Capital payments are now the fastest-growing expenditure item, projected to rise 7.5% annually over the medium term. This marks a strategic departure from the historic over-reliance on consumption spending.
Among the investment measures announced is a minimum R15 billion infrastructure bond issuance targeted at institutional investors such as pension funds. The bond aims to improve market liquidity, channel long-term savings into infrastructure, and overcome typical barriers such as illiquidity and valuation uncertainty associated with private placements.
The MTBPS also places strong emphasis on accelerating private sector participation in infrastructure financing and delivery. New public-private partnership (PPP) guidelines, a World Bank-supported credit guarantee vehicle, and the creation of partnership offices within key departments – including Water and Sanitation and Transport – are expected to de-risk investment, build confidence, and improve long-term project stability. Expanded PPP activity should further enhance logistics efficiencies and reduce pressure on road networks.
National Treasury’s fiscal strategy is anchored on four pillars: maintaining macroeconomic stability, implementing structural reforms (especially in energy and logistics), improving state capability, and supporting growth-enhancing infrastructure.
This combination of fiscal discipline, debt stabilisation and commitment to a 3% inflation target strengthens the case for potential credit rating upgrades. Government’s intention to shift from short-term expenditure to long-term investment – supported by waste-reduction and cost-cutting measures – reflects a maturing approach to governance that balances social priorities with a more business-friendly environment.
Stabilising public debt and sustaining a primary surplus address core issues that have kept South Africa in sub-investment grade. By narrowing the deficit and prioritising infrastructure investment, the government is signalling its commitment to long-term stability. Forecasts show real GDP growth rising to 1.2% in 2025 and averaging 1.8% between 2026 and 2028 – modest but essential for fiscal sustainability.
The MTBPS’s constructive tone is supported by favourable external conditions, including lower inflation, easing bond yields, stronger tax collections, and South Africa’s removal from the grey list. Collectively, these factors reduce borrowing costs and widen fiscal space.
Although the minister did not address the impact of recent U.S. trade tariffs, my view is that while they may create short-term market disruptions, exporters and consumers are likely to adapt over time.
Overall, this MTBPS reflects a shift from reactive spending to strategic investment, underpinned by credible data and a clearer long-term vision. If consistently executed, the plan could strengthen medium-term stability, boost investor confidence, lower the country’s risk premium, and improve South Africa’s sovereign credit outlook.
