Chief Economist and Advisory Partner at Citadel, Maarten Ackerman

Finance Minister Enoch Godongwana’s Medium-Term Budget Policy Statement (MTBPS) delivered today focused squarely on delivering “fiscal discipline that would result in positive long-term outcomes for the economy,” according to Citadel Chief Economist Maarten Ackerman.

“If we analyse the good, the bad and the ugly in this budget, it’s positive to note that there really was no ugly,” the economist said, acknowledging that the budget struck a notably positive and credible tone, demonstrating government’s growing commitment to fiscal discipline, macroeconomic stability and structural reform.

The budget mainly focused on restoring fiscal sustainability and policy certainty, while acknowledging that South Africa’s (SA’s) private sector had an important role to play in infrastructure reform – all of which were positive for the investability of the country.

Stronger revenue performance and signs of fiscal maturity

The National Treasury announced that revenue collection exceeded expectations by R19.3 billion, driven by better corporate tax receipts, value-added tax (VAT) collection and improved efficiency at the South African Revenue Service (SARS). On the flipside, however, it was good news for South African expatriates who worked abroad that the government had decided against taxing their foreign pensions.

Godongwana also announced that government underspending across departments had further reduced the funding requirement, resulting in a narrower deficit and lower debt-service costs. Ackerman did, however, add the caveat that it was not always good news when government departments were not spending the budgets they were allocated – this time underspending on vital functions like policing and education – and that those expenditures were likely to rise again in future budgets. As a result, government debt is now projected to stabilise at 77.9% of gross domestic product (GDP) in 2025/26 - marking what could be the first true turning point in more than a decade of rising public debt. “But only time will tell since government has a poor track record in this regard,” said Ackerman.

The Minister also projected a primary budget surplus of R68.5 billion this year, growing to R224 billion by 2028/29, while the budget deficit would narrow to 2.7% over the medium term.

For the first time, government is considering introducing a formal fiscal anchor to strengthen accountability and improve transparency around fiscal risks. “While we’re not there yet, it is a positive sign of fiscal discipline. This budget is paving the way for continued fiscal consolidation and that is positive.”

Lower nflation target Could underpin spending and rand

A key announcement in this year’s MTBPS was the introduction of a new inflation target of 3%, replacing the previous 3–6% range. Over time, this could reduce inflation expectations, create room for lower interest rates, and support household spending and business investment.

“If we look at today's announcement on the inflation target, the rand could become stronger on the back of that. Lower inflation will cause slower deterioration of the currency and so a more stable currency environment.”

Ackerman said this was a bold and positive signal to markets, even if it meant short-term fiscal trade-offs. Lower inflation and improved price stability were likely to be welcomed by long-term investors, although investors’ main concern would always be policy stability.

Structural reforms are slowly bearing fruit

Godongwana emphasised progress in energy, logistics and infrastructure reforms, pointing to:

• A significant reduction in load shedding and 2,200MW of new solar, wind and battery projects in development;‍
• Improved port efficiency and private sector participation in freight corridors expected to unlock R200 billion in new investment; and
• The creation of an Infrastructure Finance and Implementation Support Agency by March 2026 to help crowd in private capital.

“This infrastructure credit support facility is something that they've been working on for a long time, in conjunction with international agencies who have done this in other emerging markets as well. It requires that government puts down a little bit of capital and the private sector puts down more and that creates a guarantee fund to then support infrastructure borrowing, which is asset backed by these new assets. That is a robust structure. In the past, government was loath to partner with private entities in infrastructure, but now they seem to be willing to do so, and they've put down the first tranche of funds for it out of this budget. I consider that a very positive development indeed.”

Fiscal gains tempered by persistent risks

SA’s exit from the international grey list earlier this year had improved its international standing, but Godongwana warned that vigilance is needed ahead of the next evaluation in 2026. The Minister also announced new steps to tackle illicit trade, which costs the fiscus billions in lost excise revenue annually.

Ackerman noted that government’s continued willingness to implement the initiatives that helped get South Africa off the grey list was a positive signal to the world.

A rosy outlook

“This budget was not designed to excite the markets – it was designed to build confidence through credibility and fiscal stability,” said Ackerman. “Treasury has clearly prioritised the continued execution on the four pillars of economic growth, namely action plans to maintain macroeconomic stability, to implement structural reforms, to build state capability and to invest in growth-enhancing public infrastructure. All of this is very positive. So, yes, real challenges remain, but overall it was a constructive budget and probably the best one that the Minister could deliver in terms of creating some economic breathing space and relief.”