Sanisha Packirisamy | Group Economist | Momentum | mail me |
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 for the public finances.
Nevertheless, Treasury remains concerned about the risks of low growth. It has opted to use revenue overruns to support growth through investment rather than pursue faster fiscal consolidation.
We unpack the key takeaways from Finance Minister Enoch Kodungwana’s 2026 Medium-Term Budget Policy Statement (MTBPS 2026). We also examine 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% this year. This compares with its February estimate of 1.6%. It then forecasts growth of 1.6% for 2027.
Economic growth and revenue performance
Higher living costs, elevated borrowing costs and subdued investment continue to constrain faster economic growth. Progress in electricity and logistics offers some support. However, translating operational improvements into stronger sentiment and growth remains essential. This will help improve the public finances sustainably.
On the revenue side, Treasury revised gross tax collections for the current fiscal year upwards by R17.1 billion. Ahead of the MTBPS 2026 update, stronger precious metals prices had benefited company taxes and mining royalties earlier in the year. Meanwhile, personal income tax and VAT collections also showed resilience.
However, Treasury must distinguish temporary revenue windfalls from improvements that can sustainably support spending. Further efforts are therefore underway to broaden the tax net and improve collection efficiencies.
Fuel relief and social support
For consumers, the immediate focus is R10 billion in fuel price relief. Temporary relief can ease transport costs and reduce pressure on household budgets. However, it carries a fiscal cost and cannot shield consumers indefinitely from high international oil prices. Any temporary reduction in headline inflation must also be accompanied by a lasting improvement in underlying price pressures.
The government announced relief of R3 per litre on diesel and R1.50 per litre on petrol. These reductions will apply from 4 November until 1 December. Thereafter, relief will drop to R1.50 per litre on diesel and R1 per litre on petrol until 5 January 2027.
The outlook for social support is another important consideration. Protecting vulnerable households remains necessary. However, any permanent expansion of support requires a sustainable funding source.
As such, the court’s position on expanding eligibility for 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.
Public spending and infrastructure investment
On expenditure, revenue gains have given Treasury room to increase the non-interest spending envelope. The revision adds R45 billion for the current fiscal year. This funding will support health and education, strengthen local government and improve regulatory enforcement.
Treasury now estimates targeted savings of R38.1 billion over the medium term. These savings will come from reducing ineffective programmes and cutting back on social grant fraud.
Infrastructure remains central to achieving more durable economic improvement. The MTBPS 2026 infrastructure agenda includes financing reforms, such as quarterly infrastructure bond issuances. However, these measures alone will not deliver stronger growth if procurement capacity and maintenance weaknesses persist.
Municipal finances are also becoming increasingly important to the national outlook. Weak election outcomes create pressure for national support. Ring-fencing service revenues, professionalising the workforce and strengthening accountability aim to turn electricity and water revenues into more reliable services.
Fiscal deficit and debt sustainability
Turning to the fiscal arithmetic, Treasury projects the consolidated budget deficit at 3.9% of GDP in 2026/27. This is wider than market estimates ahead of the budget. Treasury expects the deficit to narrow to 2.5% by 2029/30. Nevertheless, it revised the main budget primary surplus upwards to 1.7% of GDP for this year.
In simple terms, the primary surplus measures the balance between revenue and spending before interest payments. A sustained primary surplus helps stabilise debt. However, the government still needs to borrow when interest costs exceed that surplus. Treasury also revised debt service costs upwards by R9 billion for this year. This further crowds out funding for other public priorities.
Treasury projects gross government debt at 78.2% of GDP this fiscal year. This exceeds consensus expectations, but the ratio should decline over the medium term. Treasury expects it to reach 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. Consequently, Treasury places greater significance on the growth of its primary surpluses.
Bond markets, fiscal policy and credit ratings
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 represents another important 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, a stronger focus on infrastructure and a credible debt trajectory 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.