What the budget means for South Africa’s economic outlook
Sanisha Packirisamy on MTBPS – 2026
This year’s medium-term budget was delivered against a more difficult economic backdrop than February’s national budget. Higher fuel prices and renewed global inflation pressures have squeezed household budgets and clouded the growth outlook. Yet resilient tax collections have provided some support to the public finances.
Nevertheless, given Treasury’s concerns in a low-growth environment, it opted to use the revenue overruns to support growth via investment rather than target faster fiscal consolidation. I’m Suneesha Pakrasamy, Group Economist at Momentum Group, and in this brief update, we unpack the key takeaways from Finance Minister Enoch Kodungwana’s 2026 Medium-Term Budget Policy Statement and what they mean for consumers, investors, and the country’s ratings trajectory. Starting with growth, Treasury now expects the economy to expand by 1.2 percent this year from 1.6 percent in its February estimates, followed by a 1.6 percent expansion for 2027.
The combination of higher living costs, elevated borrowing costs, and subdued investment remains a constraint to a fast acceleration in growth. Progress in electricity and logistics offers support, but translating operational improvements into stronger sentiment and growth remains essential to improving the public finances sustainably. On the revenue side, gross tax collections for the current fiscal year were revised up by R17.1 billion.
Ahead of this update, company taxes and mining royalties had benefited from stronger precious metals prices earlier in the year, while personal income tax and VAT collections also showed resilience. Given the need to distinguish between temporary windfall revenue gains and improvements that can safely support spending over time, further efforts are underway to broaden the tax net and improve collection efficiencies. For consumers, the immediate focus is fuel price relief of R10 billion.
Temporary relief can ease transport costs and pressure on household budgets, but it carries a fiscal cost and cannot insulate consumers indefinitely from high international oil prices. Any temporary reduction in headline inflation would also need to be from a lasting improvement in underlying price pressures. Government announced relief of R3 per litre on diesel and R1.50 per litre on petrol from 4 November until 1 December.
Following that, relief will drop to R1.50 on diesel and R1 on petrol until 5 January 2027. The outlook for social support is another important consideration. Protecting vulnerable households remains necessary, but any permanent expansion of support requires a sustainable funding source.
As such, the Court’s position on the expansion of the eligibility of the Social Relief of Distress Grant remains a risk to the fiscus. Preliminary estimates put the potential additional annual funding risk at more than double the current R36 billion allocation. On expenditure, the revenue gains have afforded Treasury the ability to revise the non-interest spending envelope higher by R45 billion for the current fiscal year to support health and education, strengthen local government and improve regulatory enforcement.
Targeted savings over the medium term are now estimated at R38.1 billion over the medium term. These will come from reducing ineffective programmes and cutting back on social grant fraud. Infrastructure remains central to a more durable economic improvement.
The value of infrastructure financing reforms, such as the announcement of quarterly infrastructure bond issuances, will not deliver stronger growth on its own if procurement capacity and maintenance weaknesses persist. Municipal finances are also increasingly important to the national outlook, given that weak elections create pressure for national support. Ring-fencing service revenues, professionalising the workforce and strengthening accountability are aimed at turning money collected for electricity and water into more reliable services.
Turning to the fiscal arithmetic, the consolidated budget deficit is projected at 3.9% of GDP in 2026-27, wider than the market estimates going into the budget. Treasury expects the deficit to narrow to 2.5% by 2029-2030. Nonetheless, the main budget primary surplus was revised higher to 1.7% of GDP this year.
In simple terms, this measures the balance between revenue and spending before interest payments. A sustained primary surplus helps stabilise debt, although government still needs to borrow when interest costs exceed that surplus. Debt service costs were revised up by R9 billion for this year, further crowding out funding for other public priorities.
Gross government debt is projected at 78.2% of GDP this fiscal year, higher than consensus, but is still expected to decline over the medium term to 76.6% of GDP by the end of the forecast period. Statistical revisions that increase the measured size of the economy can lower debt ratios without reducing the amount government owes. As such, Treasury places more significance on the growth of its primary surpluses.
For bond investors, the borrowing programme matters alongside the size of the deficit. A cut in issuance of 600 million in nominal bonds and 100 million in inflation-linked bonds led to a rally in bond yields. The proposed principles-based fiscal anchor is another key institutional development.
Its credibility will depend on measurable commitments, transparent reporting, independent scrutiny and a clear response when plans slip. A framework that survives changes in political leadership could, in our view, strengthen confidence in long-term debt sustainability. From a ratings perspective, sustained primary surpluses, an increased focus on infrastructure and a credible debt path would support further improvement.
An upgrade is not automatic, however. Weak growth, renewed spending pressures and higher borrowing costs could slow progress. Ultimately, the test is whether government can preserve fiscal discipline while improving the services and infrastructure that households and businesses rely on.
Temporary revenue gains provide some breathing room. Stronger growth and consistent delivery are, however, what turn that space into lasting fiscal resilience. Thank you.
