Finance Minister Enoch Godongwana. Photo: Supplied by the Government Communication and Information System (GCIS)
Finance Minister Enoch Godongwana tabled the 2026 budget projecting that public debt has reached its peak and will begin to decline over the medium term.
After several years in which debt ratios climbed and fiscal buffers narrowed, the framework set out a consolidation path built on sustained primary surpluses and moderated borrowing.
Gross debt is projected to stabilise at 78.9% of gross domestic product in the current fiscal year before declining to 76.5% by 2028 to 2029. The consolidated deficit narrows from 4.5% of GDP to 3.1% over the same period. The main budget primary surplus strengthens to above 2%. The gross borrowing requirement is lower than previously projected, easing pressure on bond issuance.
The shift is significant. Over the past decade, South Africa’s debt trajectory has been marked by rising borrowing costs, widening deficits and repeated upward revisions to projections. Stabilising the debt ratio, even at elevated levels, represents a break from that pattern. It reduces the risk that debt service costs will consume an increasing share of revenue and limits the likelihood of abrupt fiscal adjustment.
Economists broadly agree that fiscal discipline has been preserved. Their disagreement lies in what consolidation can deliver.
The budget is “a very credible, market friendly budget with relatively conservative assumptions that will be liked by both the equity and bond markets”, said Johann Els, chief economist at PSG Financial Services.
In his view, markets have only recently accepted the national treasury’s consolidation path after years of scepticism. Lower deficits, stronger primary balances and a declining debt ratio reinforce that credibility and strengthen the case for further ratings upgrades.
Els emphasised the treasury’s conservative revenue assumptions, particularly around mining receipts. By avoiding reliance on favourable commodity cycles, the framework builds resilience. If revenue outperforms projections, fiscal outcomes could improve further.
Tertia Jacobs, treasury economist and fixed income specialist at Investec, offered a similar reading, describing the budget as “more of a holding position” following the medium term budget policy statement late last year.
By refraining from building in significant revenue windfalls, the treasury has created “potential upside for revenue projections later in the year and into 2026”, Jacobs said.
Although the debt to GDP ratio was revised marginally higher than some expected, the medium term trajectory remains downward and the increase in capital expenditure is “a positive development”.
Fiscal consolidation has been preserved “in line with our long standing expectation”, said Standard Bank group head of South Africa macroeconomic research Elna Moolman.
Conservative revenue assumptions create “notable upside risk,” she said, meaning fiscal outcomes could exceed projections if commodity receipts perform better than forecast.
At the same time, markets have already priced in much of the improvement.
“This budget doesn’t justify further bond gains,” Moolman said. she says. While another upgrade by rating agency S&P appears likely this year, positive action from peers Moody’s and Fitch cannot be assumed. Stabilisation is now the starting point rather than the objective.
Growth projections form the second axis of debate.
The treasury forecast real GDP growth of 1.6% in 2026, averaging 1.8% over the medium term and reaching 2% by 2028. These projections underpin the projected decline in the debt ratio and the sustainability of the primary surplus.
The growth outlook is insufficient to alter unemployment dynamics, argued Daniel Meyer, a professor of economics at the University of Johannesburg.
“Growth is too low to create large scale opportunities especially for lower skilled people and youths. “We need growth above 3% for a long period,” he said.
Meyer described the debt ratio as “high but stable for now,” but warned that the ratio would deteriorate more until South Africa had above 3% GDP growth.” Without sustained expansion at materially higher levels, the fiscal base remains narrow and labour absorption limited.
He also identified “poor governance and instability” and policy uncertainty as ongoing constraints on domestic investment.
Economic commentator Reg Rumney concurred that the debt path appears credible under current assumptions.
“It looks credible and if this really is the tipping point it will reinforce South Africa’s attractiveness as a reliable investment destination,” he said.
However, Rumney cautioned that “anything can happen… to cause projected trajectories to change course”.
Around 20% of national debt is dollar denominated, exposing the framework to exchange rate volatility. A depreciation of the rand would increase the local currency value of that debt. A slowdown in major economies would weaken commodity demand and revenue collection, Rumney noted. In his assessment, the fiscal framework may not have substantial flexibility in the event of a significant global shock.
For Moolman, the key question is no longer whether the treasury can stabilise the debt ratio, but whether reform gains traction. Consolidation alone does not lift growth, she argued, and what matters now is implementation.
Continued focus on Operation Vulindlela — a joint initiative of the presidency and the treasury aimed at fast-tracking structural economic reforms — as well as faster infrastructure rollout and more direct intervention in failing municipalities are intended to remove bottlenecks that have constrained private investment.
If those reforms translate into improved delivery, fiscal stabilisation could support stronger growth. If not, consolidation remains contained within the balance sheet.
Political economist Dale McKinley approached the framework from a distributional perspective. On whether the budget entrenches debt reduction, he says: “No, it doesn’t entrench a debt reduction. What it does is it begins the journey.”
The single biggest risk is inequality,” he said, noting that growth at the projected levels would not resolve structural unemployment. “It’s not about growth for growth’s sake. It’s a question of what is growing and what is not growing.”
Without sustained support for labour-intensive sectors, small enterprises and domestic industry, modest expansion may leave structural disparities unchanged.
In practical terms, stabilising the debt ratio reduces the likelihood of abrupt fiscal tightening driven by market pressure. It lowers the risk that interest payments will crowd out social and infrastructure spending over time. It also improves the country’s standing with investors and ratings agencies, potentially lowering borrowing costs.
At the same time, growth below 2% implies limited employment gains. Without stronger expansion, unemployment is unlikely to decline materially, and revenue growth will rely more on efficiency and compliance than on broad-based economic momentum. Fiscal stability creates room for manoeuvre. It does not by itself generate faster growth.
The economists’ assessments converge on one point. Fiscal consolidation is broadly credible. The debate centres on whether growth and reform momentum are sufficient to make that stabilisation durable.
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