SA public finances ‘emerging from the fiscal wilderness’

For the first time in 17 years, South African government debt will stabilise and will continue to fall in the coming years, Finance Minister Enoch Godongwana declared during his 2026 Budget speech in Cape Town on Wednesday.

“The budget deficit has narrowed significantly, and debt-service costs are also falling,” he said.

Read: Small victories, big message: SA’s fiscal fortunes are shifting

Godongwana said this is in stark contrast to five years ago, around the time when the Covid-19 pandemic hit.

“State capture had hollowed out critical institutions and weakened state owned entities. SA had been downgraded to junk status by the last of the three major credit rating agencies in 2020,” he noted.

“The warning lights were flashing. Public finances were under severe strain and growth had stalled, he added.

“Faced with this crisis, we chose not to be defined by it. Instead, we turned it into a catalyst for change. We committed to a clear reform agenda and a disciplined fiscal strategy built on three principles: stabilise debt, invest in infrastructure and spend better. Today, that commitment has delivered tangible results,” said Godongwana.

Turning point

The 2026 Budget Review (tabled with the national budget on Wednesday) declares upfront that SA is at “a fiscal turning point in a resilient economy”.

Amid the more upbeat economic mood for SA, also express by economists like Adrian Saville of Gibs and Standard Bank’s Goollam Ballim, National Treasury Director-General Duncan Pieterse comments in the Budget Review forward: “Determined action has put the country’s public finances on a sustainable footing, enhancing fiscal credibility.”

He reiterates that the 2026 Budget marks an important turning point for SA.

“The outlook for economic growth is improving as reforms gather pace. Our public finances are emerging from the fiscal wilderness. A nascent confidence is reflected in our investment and borrowing environment,” writes Pieterse.

“Consistent fiscal discipline, along with government’s decision to reduce the inflation target, has improved investor perceptions and narrowed the risk premium investors attach to South Africa,” he adds.

National Treasury is now forecasting SA’s real GDP growth over the medium term (next 3 years) to average 1.8%, with inflation expectations expected to shift lower in line with the 3% target.

“This budget signals a major shift in the effort to fix local government,” says Pieterse.

Public debt

He says that the long stretch of rising public debt that began in the wake of the 2008 global financial crisis imposed significant costs on SA, consuming enormous resources.

“That period of rising debt has come to an end,” declares Pieterse.

“In line with the commitment made by the National Treasury three years ago, public debt stabilises as a percentage of GDP in the current year and is reduced over the medium term.

With the fiscal strategy on course, government has withdrawn tax increases it had pencilled in for this budget and proposes inflationary relief for taxpayers to support the recovery,” he says.

“The combined benefits of this approach are evident in the decline in government’s borrowing costs and a more favourable environment for private investment,” he adds.

“The opportunity before us is to use these foundations as a launch pad for faster, job-creating economic growth. There is broad agreement in the government of national unity on this transition to a higher-growth economy through targeted reforms and investments,” he says.

Fiscal position

• Consolidated budget deficit: 4% of GDP for 2026, but expected to narrow to 3.1% by 2028/29. (However, the target in the 2025 MTBPS was 2.9% by 2028/29).
• Total debt to GDP: Down to 77.3% in 2026/27 from 79.8% for 2025.
• Primary surplus: 0.9% of GDP.

Godongwana and Pieterse stressed on Wednesday that the series of reforms underway to mobilise private investment and accelerate public-sector delivery is gaining traction.

“Government’s own capital spending over the medium term grows at nearly 10% a year,” says the DG.

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