On 12 November, South Africa’s (SA’s) Minister of Finance Enoch Godongwana will deliver the 2025 Medium Term Budget Policy Statement (MTBPS). The MTBPS plays an important role by providing a mid-year review of fiscal performance around the targets set in the February Budget, noting any reallocations or adjustments to spending that have become necessary since the Budget was approved. It also recalibrates the Medium-Term Expenditure Framework (MTEF), offering insight into shifting priorities and their impact on fiscal planning. The 2025 MTBPS is being presented against the backdrop of earlier challenges faced during this year’s Budget tabling. However, a renewed process, marked by broader consultation and indications of improving in-year fiscal performance, suggests that this year’s statement may unfold in a more measured and (hopefully) less divisive manner.
The global macroeconomic outlook behind this year’s MTBPS remains mixed. In its October World Economic Outlook, the International Monetary Fund (IMF) raised its 2025 global growth forecast by 20 bps to 3.2%, while leaving its 2026 projection unchanged at 3.1%. Even so, if these forecasts materialise, they will mark five consecutive years of slowing global growth- the longest such stretch since 1989–1993. The World Bank has further noted that this would represent the weakest start to any decade since the 1960s. For SA, the IMF revised its growth outlook modestly higher for 2025 (to 1.1%) but slightly lower for 2026 (to 1.2%), while market consensus sits broadly in line at 1.1% and 1.4%, respectively.
SA’s near-term fiscal picture appears comparatively healthy. Strong VAT receipts, together with solid personal and corporate income tax collections, have bolstered revenue this year. Coupled with restrained expenditure growth, this points to a potential budget deficit smaller than the National Treasury’s (NT) initial 4.6% of GDP estimate- signalling that an improving fiscal position will likely be a key message in the upcoming MTBPS. Throughout the year, revenue growth has consistently outpaced spending, keeping the fiscal balance in check. After five months of FY25/FY26, the main budget deficit stands at R215bn — notably smaller than over the same period last year. On a rolling 12-month basis, the deficit is around R300bn (or 4% of GDP).
This stronger fiscal dynamic reflects firm revenue gains alongside subdued expenditure growth. Gross tax revenues have risen 9.0% YoY (+R63bn) in the first five months of the fiscal year (two ppts ahead of full-year budget expectations), despite sluggish nominal GDP growth. The outperformance has been broad-based, led by VAT, as well as healthy growth in personal (PIT) and corporate income tax (CIT) receipts.
PIT collections, up 8.4% YoY (+R23.3bn), partly reflect the impact of fiscal drag following the government’s decision not to adjust PIT thresholds for inflation. However, the strength in PIT receipts remains somewhat at odds with labour market data showing falling employment levels and weak wage growth. This highlights the ongoing disconnect between formal sector revenue buoyancy and underlying household income dynamics. Meanwhile, CIT receipts have gathered momentum in recent months following weaker-than-expected outcomes earlier in the year. Over the first five months of the fiscal year, CIT collections rose by 6.9% YoY (+R8.2bn). However, this improvement does not yet fully capture the effects of surging precious metal prices and their subsequent influence on SA’s terms of trade, export earnings, and corporate profitability – as suggested by recent data on mineral sales, international trade, and mineral royalty payments. Thus, there remains meaningful upside potential for CIT revenue to outperform in FY26/FY27 as these delayed commodity windfalls filter through. Taken together, PIT, CIT, and value-added tax (VAT) now account for roughly 80% of total gross tax revenue, underscoring the importance of maintaining momentum across all three pillars of the revenue base.
A key factor shaping this year’s fiscal performance is the delayed adoption of the Budget, which has likely distorted normal spending patterns compared with prior years. However, robust revenue growth has underpinned much of the recent fiscal improvement, and the government’s efforts to restrain expenditure have been equally important. Aggregate spending rose by just 4.0% YoY over the first five months of FY25/FY26 — a pace we attribute partly to the Budget’s late approval, though some elements of this moderation may persist. Notably, social grant spending has come in well below expectations due to fewer beneficiaries than initially budgeted, particularly under the R370 per month Social Relief of Distress (SRD) grant.
Debt-service costs have also undershot NT projections, aided by the recent rally in domestic bond yields, which has lowered borrowing costs. However, coupon payments are expected to climb sharply toward the end of the year, tempering some of this relief. Still, several in-year spending pressures highlighted by Godongwana in the February Budget remain unresolved and could require funding later in FY25/FY26. These include the withdrawal of the President’s Emergency Plan for AIDS Relief (PEPFAR) funding through USAID, key infrastructure commitments under the Budget Facility for Infrastructure (BFI), the Passenger Rail Agency of South Africa’s (PRASA) rolling stock renewal programme, and adjustments to the provincial equitable share to accommodate demographic shifts.
Unsurprisingly, fiscal support for state-owned enterprises (SOEs) continues to be a structural burden on the public finances. Eskom’s debt relief package is scheduled to conclude in FY25/FY26 with a final R80bn payment, while attention increasingly turns to Transnet – now the largest potential source of fiscal risk. The government has expanded Transnet’s guarantee to R193bn to help meet upcoming debt redemptions and avert negative credit-rating actions as the utility rolls out its turnaround plan. While this should stave off the need for direct fiscal intervention in the near term, SOEs’ weak balance sheets and operational inefficiencies remain persistent risks. NT’s upcoming fiscal risk statement is therefore likely to continue underscoring the vulnerabilities across major state entities, including chronic underinvestment, liquidity constraints, and reliance on government support. Beyond SOEs, large contingent liabilities such as the Road Accident Fund (RAF), together with pressures in local government finances and unfunded policy priorities, continue to weigh on the broader fiscal consolidation and debt-stabilisation agenda.
Unfortunately, we anticipate renewed challenges around SA’s debt trajectory, with mounting pressure on the government’s goal of stabilising debt at 77.4% of GDP in the current fiscal year. Much of this strain stems from weak nominal GDP growth, prompting NT Director-General Duncan Pieterse to caution that “additional fiscal measures” may be required to meet fiscal ratio targets. Our projections point to debt peaking just below 80% of GDP in FY27/FY28 before gradually declining thereafter. We expect this peak to occur slightly higher and later than the government’s own estimates. Still, we remain cautiously optimistic that a turning point is near, provided expenditure remains contained and fiscal discipline is maintained. Encouragingly, NT has made notable progress in funding the FY25/FY26 borrowing requirement, underpinned by increased issuance of floating-rate notes and renewed offshore demand for South African government bonds. Additional support could also come from a further drawdown of the Gold and Foreign Exchange Contingency Reserve Account (GFECRA), which has been bolstered by higher gold prices and may help ease borrowing pressures in FY27/FY28.
Regardless, amidst all these factors, and in anticipation of the upcoming tabling of the 2025 MTBPS, the points highlighted below form part of our wish list, or set of ideals, for this year’s MTBPS:
- A continued demonstration of government’s intention to follow a path of fiscal consolidation with difficult actions rather than simply words.
- A demonstration of additional measures to improve the ease of doing business in SA.
- Establish clear guidelines for identifying and phasing out low-priority or underperforming programmes within the budget, to reduce overall expenditure or reallocate funds toward government priorities. This process should be data-driven to enhance the efficiency and impact of public spending.
- Further details surrounding potential liabilities of the RAF, as well as other SOEs, which are currently in distress, including Denel, the Land and Agricultural Development Bank of SA (Land Bank), the SA National Roads Agency (SANRAL), etc.
- Detailed plans to address the financial distress of municipalities nationwide and the subsequent debt relief measures required.
- Turnaround plans for SA’s failing water boards.
- Continued resistance to pressure to further expand the social safety net.
- Clarity around the proposed National Health Insurance (NHI) and the required funding sources.
- Prioritising the strengthening of infrastructure investment, which is vital to unlocking SA’s long-term growth potential. Investment remains a significant constraint on economic performance, with real gross fixed capital formation (GFCF) still c. 20% below its 2015 peak. Public sector investment, in particular, has deteriorated further, as reflected in the weakened state of the energy, transport, and logistics sectors that have recorded constrained growth over the past decade.
- In tandem, the provision of an update on the government’s reform agenda aimed at scaling up private sector participation in infrastructure delivery. This includes expanding the use of credit guarantee schemes and public-private partnerships (PPPs), establishing sustainable financing mechanisms such as infrastructure bonds and concessional funding from international partners, and advancing efforts to streamline project appraisal and financing through the Budget Facility for Infrastructure (BFI).
- Update on the progress of the establishment of a fiscal anchor.
- Clarity (or a formal announcement) that the NT formally endorses the SA Reserve Bank’s (SARB) shift towards a lower inflation target of 3%.
Whether any of the abovementioned wish list items will come to fruition remains to be seen. Plenty of other fiscal-related issues also need to be addressed, and this list is by no means exhaustive. Interestingly, the abovementioned points are relatively unchanged from the wish list we released in our note entitled, Anchor’s 2025 Budget Wish List, dated 14 February 2025, which is indicative of the many uncertainties and unanswered questions in SA’s fiscal space.
SA’s near-term fiscal outlook appears relatively healthy, supported by strong revenue performance, contained spending, improved funding conditions, and easing government bond yields. However, the medium-term picture remains more complex. A range of fiscal vulnerabilities persists from a fragile global environment and subdued nominal GDP growth to the slow pace of structural reform and ongoing spending pressures from SOEs, an expanding social safety net, and weak local government finances. Elevated debt redemptions will continue to sustain high borrowing requirements. Political uncertainty within the Government of National Unity (GNU) adds an additional layer of risk to fiscal stability and policy continuity.
