Economists are betting on an upbeat 2026 national Budget speech from finance minister Enoch Godongwana this week as the National Treasury eyes a sizeable revenue overrun, with record commodity prices and restrained expenditure set to bolster state coffers.
A lot has changed since last year’s budget statement, when the speech’s last-minute postponement over a proposed two percentage point VAT hike brought into question the stability of the government of national unity (GNU).
SA has emerged from this turbulence through a series of tailwinds.
Removal from the Financial Action Task Force’s greylist, a recent credit ratings upgrade, setting a 3% inflation target, and successive rate cuts have all worked in concert to buoy sentiment towards SA.
All this has taken place against the backdrop of a weaker dollar and record gold and platinum group metal prices, driving bond yields to their lowest level since 2019 and the rand to its best level in more than two years in recent weeks.
As easing inflation lowers government borrowing costs, progress on structural reform bolsters the growth outlook.
The state’s Operation Vulindlela has kicked load-shedding to the curb and ignited liberalisation in the logistics sector.
Lisette IJssel de Schepper, chief economist of the Bureau of Economic Research, expects the National Treasury to be in a celebratory mood on budget day.
In contrast to government revenue, which grew by 10.4% over the first nine months of the fiscal year, expenditure growth was kept below 6%, beating the medium-term budget policy statement’s (MTBPS) 8.3% projection.
This restraint may “not only allow Treasury to hit its debt target but could even result in taxpayers seeing some relief from bracket creep for the first time in several years”, she said.
PSG Financial Services chief economist Johann Els also expects good news on Thursday.
“The 2025/26 outcome is likely to be materially better than the original targets, driven mainly by revenue overperformance rather than spending cuts,” said Els.
“That reduces the need for unpleasant surprises. No major tax hikes. No emergency measures. Probably just the usual fuel levy and sin taxes.”
IJssel de Schepper said the debt ratio was expected to be on target at 77.9% of GDP in 2025/26, with South Africa’s elevated debt levels and the cost of servicing debt still a concern.
“The Treasury deserves credit for stabilising the fiscal situation, but this doesn’t mean that South Africa has decisively turned the fiscal corner.
“Public debt levels remain elevated, debt-service costs continue to absorb a large share of revenue, and tax fatigue limits the scope for additional revenue mobilisation.”
The Treasury hopes to reduce this ratio to 70% in the medium term to address these concerns. While its proposed fiscal anchor would help, “we are not convinced that debt stabilisation is just within reach,” said IJssel de Schepper.
“Given the high execution risks, mainly on the growth and expenditure side, we expect the debt ratio to keep rising gradually up to about 80% by 2027/28.”
On the data front, South Africa faces a busy economic calendar towards the end of the week.
On Thursday, StatsSA will publish its producer price index (PPI) for January, providing an indication of producer inflation at the start of the year.
Investec economist Lara Hodes expects PPI to be largely flat, easing to 2.4% year-on-year from 2.9% in December. IJssel de Schepper also forecast a mild contraction.
On Friday, private sector credit extension (PSCE) figures for January will offer a snapshot of underlying demand conditions at the start of the year.
“PSCE is projected to have remained elevated, above 8.0% at the start of 2026, after ending the year at 8.7% [year on year], underpinned by a 12.9% [year-on-year] lift in credit afforded to corporates, which makes up over 50% of total credit extended,” said Hodes. — Business Day
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