By Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole & Ame Muller
Key highlights
In a nutshell
The 2026 Medium-Term Budget Policy Statement (MTBPS) provides a credible continuation of this administration's fiscal consolidation, with government now shifting from stabilising debt to gradually reducing it. Stronger-than-expected revenue collection, a rising primary surplus and continued expenditure restraint have improved the fiscal trajectory, despite a more challenging global environment.
The main budget deficit is expected to narrow from 4.3% of GDP in 2025/26 to 3.7% in 2026/27 and 2.5% by 2029/30, while the primary surplus rises from 1.0% to 2.9% of GDP over the same period. Gross debt stabilised at 78.4% of GDP in 2025/26 and is expected to decline to 76.6% by 2029/30 (Figure 1).
Revenue has also surprised positively relative to the 2026 Budget. Gross tax revenue is R17.1 billion higher than the 2026 Budget estimate in 2026/27, while total tax and non-tax revenue and National Revenue Fund receipts are R54.1 billion above the original estimate (see Appendix). Importantly, government is allocating part of this improvement towards infrastructure and the contingency reserve rather than using the full windfall to fund permanent spending.
The fiscal framework is therefore moving in the right direction, but the bigger challenge remains economic growth. Real GDP growth is forecast at only 1.2% in 2026, rising to 1.6% in 2027, 1.8% in 2028 and 2.0% by 2029. With unemployment at 33.6%, this remains well below what is required to generate sustainable improvements in living standards and employment.
To ease fuel price pressures, government will reduce the fuel levy by R3.00 per litre for diesel and R1.50 per litre for petrol from 4 November 2026 until 1 December 2026. Thereafter, the relief will continue but at a lower amount of R1.50 per litre for diesel and R1.00 per litre for petrol until 5 January 2027, providing R10 billion in support.
Critically, the MTBPS passes the fiscal credibility test, but the ultimate test will now be whether government can convert improved fiscal stability into higher potential growth.
Fiscal consolidation is gaining credibility
The MTBPS confirms that government has achieved an important fiscal milestone as gross debt stabilised in 2025/26 for the first time since 2008.
The debt-to-GDP ratio of 78.4% was lower than projected in the 2026 Budget, partly due to stronger nominal GDP. However, over the medium term, debt is expected to decline along a higher path than previously forecast because nominal GDP growth is now lower. This highlights an important point, that debt-to-GDP is sensitive to movements in nominal GDP. As such, the primary balance is an important complementary measure of fiscal performance, particularly when economic and inflation assumptions are changing.
The primary surplus is projected to increase from 1.0% of GDP in 2025/26 to 1.7% in 2026/27, reaching 2.9% by 2029/30, while the main deficit is expected to narrow from 4.3% to 2.5% over the same period. This provides a credible mechanism for gradually reducing the debt ratio.
Importantly, revenue performance is supporting this adjustment. Higher corporate and dividends tax, net VAT collections, mineral and petroleum royalties and other receipts have lifted the 2026/27 revenue outlook. More importantly, government has resisted treating the full improvement as permanent fiscal space. Of the stronger revenue position, R10 billion is being allocated to the contingency reserve, while the remainder will support infrastructure projects under consideration through the Budget Facility for Infrastructure, underscoring a prudent approach.
The quality of spending is becoming as important as fiscal restraint
The MTBPS represents a gradual shift in the composition of public spending towards capital investment. Consolidated government spending is set to rise from R2.72 trillion in 2026/27 to R3.02 trillion by 2029/30, but expenditure growth should average 3.6% per annum. Payments for capital assets are expected to grow by 5.3% over the 2027 Medium-Term Expenditure Framework (MTEF), faster than the wage bill and goods and services (see Figure 2).
Government has also identified R38.1 billion in savings through programme reviews, beneficiary verification, efficiency measures and the recovery of accumulated cash surpluses. Treasury is redirecting these savings to priority areas. This reflects that improving the quality and economic return of expenditure is critical. However, challenges remain at local government level, where financial mismanagement and weak service delivery continue to undermine infrastructure investment. As a result, government is shifting from oversight to intervention, strengthening grant conditionality and reforming the Municipal Finance Management Act, a critical adjustment for the credibility of the broader fiscal framework.
Debt-service costs remain a constraint and, even though they peaked as a share of revenue, are expected to stay around 5.4% of GDP through 2029/30, even as the deficit declines. This illustrates why reducing the debt stock remains critical. The fiscal space currently absorbed by debt service could ultimately be redirected towards infrastructure and other development priorities.
Growth remains the central challenge
The fiscal outlook has improved, yet the growth outlook remains modest. Real GDP growth is forecast at 1.2% in 2026, down from 1.6% projected in the 2026 Budget, reflecting the impact of the Middle East conflict, higher fuel prices, weaker confidence and tighter global financial conditions. Growth is expected to improve to 1.6% in 2027, 1.9% in 2028 and 2.0% in 2029 (see Figure 3).
Despite a resilient economy and projected growth improvement, the labour market remains a major concern. The official unemployment rate rose to 33.6% in 2Q26, and the number of unemployed people is now around 1.8 million higher than pre-pandemic levels. Therefore, fiscal stability is necessary, but insufficient to solve South Africa's structural growth and employment problem and the MTBPS has rightly placed structural reforms at the centre of the medium-term growth strategy, focusing on macroeconomic stability, structural reform, stronger state capability and growth-enhancing public infrastructure pillars.
National Treasury estimates that successful implementation of the reform programme could raise the level of GDP by 3.1-percentage points by 2034, suggesting that the payoff is potentially significant though heavily dependent on execution.
A fiscal anchor strengthens the framework
One of the most important institutional developments in this MTBPS is government's proposal to entrench fiscal sustainability through a principles-based fiscal anchor.
The proposed framework would require each incoming administration to set out its fiscal objectives, assumptions, strategy and risks, and explain how its policy choices support fiscal sustainability. Government would then report against the plan through the Budget and MTBPS, including explanations for material deviations.
This is a positive development because it strengthens accountability, transparency and policy continuity without mechanically restricting the fiscal choices of future governments. The important feature is that the framework establishes binding duties to disclose, assess and explain fiscal choices, while allowing governments to retain responsibility for their policy decisions.
If implemented effectively, the fiscal anchor should help institutionalise the fiscal discipline established in recent years.
Implications for households, businesses and markets
For households and small businesses, the immediate impact of this MTBPS is fuel levy relief on diesel and petrol, providing R10 billion in support. The greater medium-term benefit is indirect and includes improved fiscal credibility, which, together with a credible monetary policy framework, should lower borrowing costs over time, while infrastructure and structural reforms should gradually improve economic opportunities.
For corporates and the broader SMEs sector, the most important signals are the continued emphasis on infrastructure, logistics, energy reform, public-private partnerships and a more predictable fiscal framework. These measures are more likely to lift private sector investment and productivity.
However, the fiscal framework remains exposed to weaker growth, higher global borrowing costs, revenue volatility, state-owned enterprise risks and climate-related shocks. Therefore, the decision to increase contingency reserves is critical.
For financial markets, the MTBPS was modestly but genuinely bond positive. A better-than-expected deficit, a rising primary surplus and the proposed fiscal anchor support fiscal credibility, although a higher medium-term debt path limits the upside. For equities, the growth downgrade weighed on domestic shares, while fuel levy relief and the infrastructure pipeline offer positive but selective support. The latter was evidence by the JSE All Share's negative headline reaction, although the outperformance of the Small and Midcap Indices, which offer a clearer barometer of SA Inc, signals that domestic businesses are being re-rated on the back of the improved fiscal sustainability, lower bond yields, and the fuel levy relief heading into year end.
On the currency front, the rand had been largely flat ahead of the speech but as the minister spoke, it strengthened from about R16.42 to the US dollar to as low as R16.36. Bond yields had already been moving in the right direction this morning, following on from cooler-than-expected CPI print. A meaningful extension followed during and after the MTBPS, with the 10-year benchmark yield falling 14.8-basis points (bps) to 8.8%, marking a significant single-session move, while the R2044 came down about 17.3bps to 9.2%. The long-end strength is a direct response to the confirmation of reduced funding requirements- lower issuance means less supply hitting the market, as well as positive bond buyback programme.
The bottom line
The 2026 MTBPS represents meaningful progress on fiscal stabilisation. Government has achieved its immediate objective of stabilising debt, with gross debt at 78.4% of GDP in 2025/26, and is now targeting a gradual decline to 76.6% by 2029/30. The primary surplus is rising, the budget deficit is narrowing, and stronger revenue collection is providing additional fiscal space.
The quality of adjustment is also improving, with greater emphasis on capital investment, programme efficiency and infrastructure delivery rather than just reducing expenditure.
However, growth remains a bigger challenge. At 1.2% in 2026 and only 2.0% by 2029, economic growth remains too weak to sustainably address unemployment, poverty and South Africa's structural fiscal pressures. Thus, this MTBPS effectively moves the policy debate from "Can South Africa stabilise its public finances?" to "Can fiscal stability be converted into stronger potential growth?" Here, execution will be critical to accelerating electricity, logistics, and water reform; improving state capability; raising the efficiency of infrastructure spending; and crowding in private investment.
