South Africa’s economic outlook has become more challenging since Finance Minister Enoch Godongwana delivered his national Budget in February, with higher fuel prices, renewed global inflationary pressures and elevated borrowing costs putting households and businesses under strain.
Against this backdrop, Godongwana presented the 2026 Medium-Term Budget Policy Statement (MTBPS) on Wednesday, setting out government’s plans to manage public finances while supporting economic growth.
Stronger-than-expected tax collections have given the National Treasury additional room to manoeuvre, but the challenge remains turning that revenue into lasting improvements in the economy.
Investment rather than prudence
Sanisha Packirisamy, Group Economist at Momentum Group, said Treasury had chosen to use the revenue windfall to support investment and growth rather than pursue faster fiscal consolidation.
“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,” she said.
The revised growth forecasts underline the scale of the challenge. Treasury now expects the economy to expand by 1.2% in 2026, down from the 1.6% projected in February, before growth improves to 1.6% in 2027.
Packirisamy said higher living costs, expensive borrowing and subdued investment continued to constrain a stronger recovery. While improvements in electricity and logistics offered some encouragement, she said these needed to translate into stronger business confidence and economic activity.
“Translating operational improvements into stronger sentiment and growth remains essential to improving the public finances sustainably,” she said.
Revenue relief
Tax revenue has provided some relief. Treasury raised its forecast for collections in the current financial year by R17.1 billion, with stronger corporate tax, mining royalties, personal income tax and VAT contributing to the improvement.
However, Packirisamy cautioned against treating all the additional revenue as a permanent boost to government’s finances. Some of the gains have been supported by stronger precious metals prices, which may not be sustained. Broadening the tax base and improving collection efficiency will remain important to funding government commitments over the longer term.
For households feeling the pressure of higher living costs, the budget’s most immediate intervention is R10 billion in temporary fuel levy relief.
From 4 November to 1 December, the levy will be reduced by R3 per litre for diesel and R1.50 for petrol. The relief will then be scaled back to R1.50 per litre for diesel and R1 for petrol until 5 January 2027.
Protecting vulnerable households
Packirisamy said the cuts could help ease transport costs and provide some relief to household budgets, but would not shield consumers indefinitely from high international oil prices.
“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,” she said.
The additional revenue has also allowed Treasury to increase non-interest spending by R45 billion in the current financial year, with allocations supporting health and education, local government and regulatory enforcement. At the same time, government plans to save R38.1 billion over the medium term by reducing ineffective programmes and tackling social grant fraud.
Packirisamy said protecting vulnerable households remained necessary, but any permanent expansion of social support would require sustainable funding. The potential fiscal implications of expanding eligibility for the Social Relief of Distress Grant therefore remain an area to watch.
Infrastructure investment is another key part of government’s growth strategy. Packirisamy said financing reforms, including plans for quarterly infrastructure bond issuances, would not deliver stronger growth on their own if procurement and maintenance problems persisted.
Municipal finances are also increasingly important to the broader economic outlook. Packirisamy said reforms aimed at improving accountability, professionalising municipal workforces and ensuring revenue from services such as water and electricity was used appropriately would be important to delivering more reliable services.
The government’s fiscal position remains under pressure despite the improved revenue outlook. Treasury projects the consolidated budget deficit at 3.9% of gross domestic product (GDP) in 2026/27, with the shortfall expected to narrow to 2.5% by 2029/30.
The main budget primary surplus, which measures the difference between revenue and spending before interest payments, is projected at 1.7% of GDP this year. Gross government debt is forecast at 78.2% of GDP in 2026/27, before declining to 76.6% by the end of the forecast period.
Packirisamy said maintaining primary surpluses would help stabilise government debt, although rising interest costs remained a concern. Treasury has revised debt-service costs upwards by R9 billion for the current financial year, leaving less money available for other priorities.
She also highlighted the proposed principles-based fiscal anchor as a potentially important step towards strengthening confidence in government’s long-term financial management. Its effectiveness, however, would depend on clear commitments, transparent reporting and independent scrutiny.
“A framework that survives changes in political leadership could, in our view, strengthen confidence in long-term debt sustainability,” she said.
For South Africa’s credit-rating outlook, sustained primary surpluses, increased infrastructure investment and a credible path towards lower debt would be positive developments. Packirisamy cautioned, however, that further progress was not guaranteed, with weak growth, renewed spending pressures and higher borrowing costs capable of undermining the improvement.
“An upgrade is not automatic,” she said, adding that government needed to preserve fiscal discipline while improving the services and infrastructure on which households and businesses rely.
Packirisamy said temporary revenue gains had provided some breathing room, but lasting fiscal resilience would depend on stronger economic growth and consistent delivery.
“Stronger growth and consistent delivery are, however, what turn that space into lasting fiscal resilience,” she said.
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