“This is the first time since the 2008 financial crisis that public debt will not grow as a percentage of GDP.” Those words from Finance Minister Enoch Godongwana in his MTBPS speech are profoundly significant for the country’s economic prospects. They are the culmination of painful decisions where the government  has stuck to the fiscal path in the face of immense pressure to increase expenditure.

BLSA commends this MTPBS – it is positive for the markets and bodes well for investor confidence and South Africa’s credit ratings. Shortly after the speech, the rand strengthened to about R17/dollar, from R17.15 before the speech, and it is sharply stronger that its one-month peak on 5 November of R17.55. JSE reaction was also positive, with the top 40 index climbing 1.22% after the speech, and bonds also strengthened.

Minister Godongwana outlined a clear fiscal pathway aimed at stabilising and then reducing public debt over the medium term, with government debt stabilising in 2025/26 at 77.9% of GDP. That, along with achieving a primary budget surplus, has positive implications for the country’s credit ratings.

“BLSA is hopeful that we can lift ourselves out of sub-investment grade territory, while it will also heighten investor confidence. This would be hugely positive for the country’s economic growth prospects as debt service costs would fall. Importantly, it would be a well-deserved reward for the years of fiscal discipline, providing more scope to increase expenditure in areas of need, including for welfare expenditure and economic development,” says BLSA CEO Busisiwe Mavuso.

Already, debt-service costs for this fiscal year will be R4.8bn lower than estimated in the 2025 Budget, supported by lower interest rates, lower inflation and a stronger currency. As a share of revenue, National Treasury projects that debt-service costs will peak at 21.4% in 2025/26 and decline steadily thereafter.

The minister said that since 2008, “spending has consistently exceeded revenue, driving up debt and debt-service costs. These costs crowded out spending on critical services and exerted pressure on lending rates across the economy. But we are now turning this around.” 

Primary budget surplus
The primary budget surplus, of R68.5bn or 0.9% of GDP, is another fiscal milestone where National Treasury has delivered on its promise. National Treasury is now projecting it to climb to R224bn by 2028/29, demonstrating the government’s sustained commitment to fiscal discipline. The primary surplus means that government revenues now exceed non-interest spending, allowing the country to begin reducing its debt burden for the first time since the 2008 financial crisis.

“These achievements are particularly notable given the challenging environment of persistently low economic growth,” says Mavuso.  They also reflect improved revenue collection along with controlled expenditure growth, with revenue projected to exceed the Budget estimates by R19.3bn this year. 

Infrastructure
Public sector infrastructure spending has long been problematic, despite targets exceeding R1tn over three years. Infrastructure development is inextricably linked to the ongoing reforms in the energy, transport/logistics and water sectors and business has been supporting government in trying to streamline processes and overcome hurdles.

In his speech, Minister Godongwana said government would soon launch a new infrastructure bond to raise at least R15bn for the Budget Facility for Infrastructure projects and government would also contribute R2bn to capitalise the Credit Guarantee Vehicle. The Budget Facility for Infrastructure had also been reconfigured to run four bid windows annually instead of one. Importantly, R4.1bn was also allocated for disaster relief, particularly to fix schools, pipelines and other infrastructure damaged between last year and this year by flooding in KwaZulu-Natal, Mpumalanga and the Eastern Cape.

In conjunction with private-public partnership (PPP) amendments effective from 1 June 2025, the processes for delivering on infrastructure projects is more efficient. However, BLSA would encourage developing clearer frameworks before the main Budget in February next year.

Mavuso says the importance of developing infrastructure to address critical needs cannot be overemphasised. Just in the energy sector, Eskom’s Transmission Development Plan estimates that more than 14,000km of new transmission lines will be required in the next decade to accommodate an additional 53 GW of generation capacity. Significant investments are also needed in the country’s transport/logistics and water systems to get them to operate efficiently. “Much of this infrastructure requires private sector investment, and BLSA will continue to support government, in terms of resources, skills and capacity, in preparing these areas to be “investment ready”. She emphasises that the economic benefits from such expenditure will only begin to be visible over the longer term. “BLSA commends government for adhering to its commitments in these areas”.

Mavuso says this fiscal discipline is particularly significant in the face of the country’s low-growth environment. Minister Godongwana revised his GDP growth forecast for 2025/26 to 1.2%, significantly lower than the 1.9% projected in the February/March 2025 Budget and the 1.4% forecast in the revised May 2025 Budget.

National Treasury is also reforming the municipal infrastructure grant so that municipalities that show persistent failure in infrastructure delivery will not receive direct funding. Instead, the grant will shift to indirect models through agencies like the Municipal Infrastructure Support Agent and Development Bank of Southern Africa. While BLSA welcomes these interventions, we emphasise they must remain temporary; the focus needs to be on accelerating the professionalisation of local government and building municipal capacity.

Long-term benefits
Inflation targeting is another area where National Treasury is forgoing short-term gains for long-term benefits. The minister announced the new inflation target of 3% with a 1pp tolerance band, replacing the previous target range of 3-6%, to be implemented over the next two years. He said this would, over time, decrease inflation expectations, creating room for lower interest rates. This would support household spending and business investment, boosting economic growth and job creation. However, he acknowledged that “the short-term fiscal costs of a lower target, which include lower nominal GDP and revenue growth, will make achieving fiscal targets more challenging”, though he emphasised that “the long-term benefits of taking this step far outweigh these costs”.

Conclusion
In this MTBPS, Minister Godongwana has sent a strong, positive signal to credit rating agencies and international investors: the country is achieving real progress in improving the management of its finances. Following the improved sentiment after SA’s removal from the FATF grey list, BLSA is hopeful that the credit rating agencies will recognise South Africa’s solid, significant progress and that we can soon begin emerging from “junk” investment grade status. SA is also firmly committed to following through on reform implementation, which will establish the foundations to build a more efficient and robust economy for generations to come. “Even better would be to accelerate the reforms process so that the economic benefits become more tangible sooner than later,” says Mavuso.

“Overall, this MTBPS puts the country in a stronger position than it was previously, and we hope to see benefits in the short term in relation to the country’s credit ratings,” says Mavuso. “The challenge now is to ensure reform implementation is successfully executed, particularly in terms of the infrastructure development requirements, and in so doing, locking in the benefits that will begin to flow over the longer term.”

 

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