South Africa's government could collect at least ZAR50bn ($3bn) more in tax revenue than forecast in February, according to an estimate by PSG Financial Services, potentially narrowing the budget deficit as Finance Minister Enoch Godongwana prepares to present his 2026 Medium-Term Budget Policy Statement (MTBPS) on Wednesday (October 21) afternoon, four hours after Statistics South Africa is due to release September consumer inflation figures.
The debate among economists is less about whether South Africa will enjoy a tax windfall than about how much of it the government will retain and whether the improvement can be sustained.
Johann Els, chief economist at PSG Financial Services (JSE: KST; NSX: KFS), estimates that stronger receipts from mining companies, personal income tax and value-added tax (VAT) could reduce the consolidated budget deficit to around 3.5% of GDP in the 2026/27 fiscal year, compared with the 4% projected in February.
Els said in an October 14 assessment that tax collections were running substantially ahead of expectations, supported by higher precious metals prices and resilient household tax receipts.
The potential revenue overrun could strengthen the primary budget balance, which excludes interest payments on government debt. Els expects a primary surplus of around 1.9% of GDP. However, he warned that the revenue improvement might prove temporary because part of the increase reflects elevated commodity prices rather than stronger underlying economic activity.
Bank of America (NYSE: BAC) estimates an even larger revenue overrun of ZAR70bn in 2026/27, driven primarily by stronger corporate taxes from gold and precious metals producers, according to Business Day. However, it expects additional expenditure of around ZAR53bn to absorb most of the windfall, limiting the net fiscal improvement to approximately ZAR20bn.
Investec chief economist Annabel Bishop is less optimistic, expecting little deficit improvement, with a risk of it widening to 4.1% of GDP if expenditure continues to exceed the budget. Investec operates through dual-listed Investec Limited (JSE: INL) and Investec plc (LSE: INVP; JSE: INP). In an October 9 assessment, Bishop noted that spending reached 42% of the annual allocation in the first five months of 2026/27, up from 41% at the same stage a year earlier.
In the February 2026 budget, Treasury forecast gross government debt at 78.9% of GDP in 2025/26, declining to 77.3% in 2026/27.
Debt servicing remains a major constraint. Treasury estimated in February that debt-service costs would absorb 21.3% of main-budget revenue in 2025/26, declining to 20.2% by 2028/29. Lower borrowing costs and sustained primary surpluses would ease pressure on government borrowing and create more room for spending.
David Omojomolo, Africa economist at Capital Economics, offered a positive assessment of fiscal consolidation in an October 1 analysis. "The South African Treasury’s commitment to repairing the public finances has been stronger than we had expected," he wrote, citing a rolling 12-month primary surplus of 1.5% of GDP.
Omojomolo expects government debt to peak at 78.5% of GDP in 2026/27 before declining to 77.8% in 2027/28 and 77.3% in 2028/29. His forecast implies a later debt peak than Treasury projected in February, but also a sustained decline that could reduce South Africa's sovereign risk premium. He expects the 10-year government bond yield to fall from around 9% to 8% by the end of 2028.
Godongwana is also expected to provide further details on plans for a principles-based fiscal anchor intended to strengthen long-term budget discipline.
Investec Wealth & Investment International strategist Osagyefo Mazwai sees a greater than 50% probability of South Africa regaining investment-grade status by 2028, according to Bloomberg. He said a credible mid-term budget demonstrating sustained debt reduction and declining debt-service costs could help secure further sovereign credit-rating upgrades.
S&P Global Ratings, part of S&P Global (NYSE: SPGI), upgraded South Africa's foreign-currency rating to BB in November 2025, its first upgrade in nearly two decades, while Moody's Ratings, part of Moody's Corporation (NYSE: MCO), revised its Ba2 outlook to positive in May 2026. Both ratings remain below investment grade. See IntelliNews: S&P upgrades South Africa as Fitch affirms rating and debt peak forecast rises to 77.9%.
Weak growth and falling mining output
The International Monetary Fund's October forecasts put South African economic growth at just 1% in 2026, compared with 4.5% across sub-Saharan Africa. The government had projected growth of 1.6% in its February budget.
The economy contracted 0.2% quarter-on-quarter in the second quarter of 2026. Capital Economics expects growth of 1.5% for the year and around 2% in 2027–28, although higher energy prices and inflation have weighed on domestic activity.
Mining production fell 12.7% year on year in August, according to Statistics South Africa, with platinum group metals, coal and iron ore accounting for the largest declines.
Platinum group metals production contracted 22.5%, coal output fell 11.7% and iron ore production dropped 16.2%.
The figures highlight the distinction between higher mining tax receipts, supported by commodity prices and company profitability, and weaker physical production.
Inflation figures to test interest-rate outlook
Annual inflation increased to 4.4% in August from 4.3% in July. Economists at Nedbank, a subsidiary of Nedbank Group (JSE: NED), expect it to accelerate to 4.8% in September, largely because of higher transport costs linked to fuel prices and rand depreciation.
Trade union federation COSATU has urged Godongwana to outline measures to ease fuel costs in the forthcoming budget statement. Its parliamentary coordinator, Matthew Parks, called on October 19 for the government to deploy ZAR10bn in proposed fuel-price relief funding to cushion workers and households against higher transport and food prices. The funding remains subject to the legislative process.
South African Reserve Bank Governor Lesetja Kganyago warned during the IMF and World Bank annual meetings in Bangkok the previous week that geopolitical uncertainty, rising energy and fertiliser costs and potential food supply disruptions continued to threaten the inflation outlook.
In an October 15 interview with Reuters, Kganyago said inflation was expected to average 4.4% in 2026 before returning to the central bank's 3% target in 2028.
The Reserve Bank raised its policy rate by 25 basis points to 7.25% in September, reflecting concerns that inflationary pressures could persist despite weak economic activity. Its next monetary policy decision is scheduled for November 19.
The tightening marks a reversal from November 2025, when the Reserve Bank cut its policy rate to 6.75% following adoption of a lower 3% inflation target. Its October Monetary Policy Review projects inflation above 5% until the second quarter of 2027, reflecting the impact of higher global energy costs and other supply shocks. See IntelliNews: South Africa resumes easing cycle with 25bp cut under new inflation target.