Reza Hendrickse, Portfolio Manager at PPS Investments

South Africa’s fiscal story is gradually shifting from acute deterioration to fragile stabilisation. Today’s Medium Term Budget Policy Statement (MTBPS) highlighted revenues are outperforming expectations, expenditure growth is in check and debt metrics are inching towards a plateau rather than a runaway path. None of these imply that our structural challenges are solved, however, collectively they offer a modest boost to confidence.

Revenue upside was the main standout today, which creates fiscal room to manoeuvre without resorting to tax hikes. This year revenues will exceed budget estimates by around R20bn, thanks to stronger household expenditure (which boosted VAT collections) and corporate tax receipts. Surprisingly, the Minister was not explicit regarding the windfall from mining sector profits.

On the expenditure side, the tone was one of restraint, although National Treasury is using the revenue adjustment as an opportunity to propose additional expenditure of R16bn. Debt-service costs will however be R5bn lower than budget estimates, and importantly, are now forecast to grow materially lower than the 2025 Budget estimates (i.e. 3.8% growth vs 7.4%). The decline in bond yields is contributing to lower debt servicing costs.

Debt dynamics remain a focal point. National Treasury previously committed to stabilising debt-to-GDP earlier this year, and the Minister announced this remains on track. Gross debt-to-GDP will stabilise at 77.9 declining gradually, assuming growth holds and expenditure remains controlled. Importantly, the small but growing primary surplus (revenue less non-interest spending) will be a key tool for debt stabilisation. This alone is a clear signal of fiscal progress.

An improving primary balance reduces the need to borrow for day-to-day operations, lowering the rollover and funding risk. In addition, expenditure restraint paired with revenue upside builds confidence that the debt path is under control. This is positive for South Africa’s sovereign credit rating outlook and places downward pressure on risk premia associated with South African financial assets.

Notwithstanding some encouraging signs, South Africa’s structural risks still loom. Growth forecasts remain muted, with National Treasury’s 1.2% growth forecast for 2025 is expected to rise only modestly to 1.8% over the coming years. Growth is the strongest lever when it comes to improving South Africa’s debt dynamics materially.

It is important to recognise that the recent upside in revenue has been cyclical rather than structural, driven by higher precious metal prices boosting mining profits. Achieving durable growth will require sustained and meaningful structural reforms, particularly in state-owned enterprises and municipalities,

which have historically strained public finances. While progress is evident, especially in electricity and logistics, greater urgency is essential to maintain momentum.

As expected, today’s MTBPS delivered a cautiously optimistic narrative rather than a bold turnaround. National Treasury emphasised revenue momentum, moderate spending growth and debt stabilisation, which are all steps in the right direction. Green shoots in the form of an improved primary balance and the better funding outlook are both positive signs for fiscal risk, while the adoption of the 3% inflation target motivated by the SARB should yield longer-term results.

For now, with economic growth still muted, and reform execution still uncertain, the margin for error is small. Although the current policy stance appears credible, the hard work is in execution thereof. South Africa may be out of crisis mode but is not yet in full recovery.