Banking Association South Africa (BASA)

The 2025 Medium Term Budget Policy Statement (MTBPS) announcement of an inflation target of three percent provides policy certainty, strengthens the country’s macro-economic outlook and tackles the increasing cost of living that hits the most vulnerable, the hardest.

Although inflation is already close to the target, there is no gainsaying that the lower inflation target may put pressure on economic growth and slow the easing of interest rates. However, rather than being distracted by the inevitable debate about the costs and benefits of the trade-off, South Africa needs to focus on speeding up the economic reforms that have resulted in incremental improvements in the country’s fiscal health and economic growth prospects. Despite the marginally better projections, at an average of 1,8% over the next three years, South Africa’s economic growth prospects are far below what the country needs.

Better than expected revenue, lower debt service costs, and a narrowing of the budget deficit, all significantly strengthen the expectation that South Africa will receive credit rating upgrades. The policy reforms that have resulted in improved performance – and will facilitate further investment - in power, logistics and other economic infrastructure, should provide an important boost to business and investor confidence. The improved performance in ports and electricity supply are concrete data points that show that South Africa is capable of overcoming policy inertia. The medium-term saving of R6,7 billion – by closing or reducing – non-performing programmes is an indication that government can act on difficult decisions.

This is reason for optimism for efforts to tackle the crime and municipal disfunction, now two of the biggest threats to sustainable inclusive economic growth. The remark by the Minister of Finance, Enoch Godongwana, that Cabinet has committed to a coordinated fight against crime is important at a time when confidence in the country’s law enforcement agencies is being challenged by evidence being presented at parliamentary hearings and the Madlanga Commission of Enquiry into allegations of criminality, political interference, and corruption in the criminal justice system.

The introduction of a procurement dashboard is another important move towards the transparency necessary to reduce corruption in the public and private sector. Municipal disfunction has increased the cost of living for households and of doing business, hampering the expansion of both small and large businesses. Greater intervention to address these persistent failures is necessary.As expected, the MTBPS showed incremental – but confidence boosting - progress on key economic and fiscal indicators. The challenge now is to sustainably increase the rate of structural reform.