Finance Minister Enoch Godongwana.
Finance Minister Enoch Godongwana sounded an optimistic tone in his medium-term budget policy statement (MTBPS) on Wednesday, saying revenue this year was expected to come in at a better than expected R19.7 billion, one of the signs of an economy slowly on the mend.
“As we table this policy statement, we have reason to be optimistic about the future of our country,” Godongwana told Parliament, while cautioning against complacency.
He drew his optimism partly from the fact that the medium term budget did not face the same opposition from partners in the government of national unity which delayed the passing of the main budget earlier this year and forced Godongwana to scrap a planned VAT increase.
“Our optimism is rooted in the progress we have made in keeping the promises we set out. A promise to grow the economy faster, to strengthen public finances, and to improve life for all South Africans. Two years ago, we committed to stabilising public debt in the current year and then begin to reduce it,” he said.
“Despite a challenging environment of persistently low economic growth, we are on track to achieve this goal. We also committed to remove South Africa from the Financial Action Task Force grey list. We have delivered on this commitment in just two and a half years. This is thanks to collaboration across government departments, law enforcement agencies and the private sector.”
The Paris-based international financial crimes watchdog grey-listed South Africa in 2023, citing shortcomings in its systems to counter money laundering and terrorist financing.
On Wednesday, Godongwana forecast real GDP growth of 1.2% for the country this year, more than double the expansion in 2024, with the outlook strengthening moderately over the medium term.
“We now forecast real GDP growth will average 1.8 per cent between 2026 and 2028,” he said.
He announced a lower inflation target for South Africa of 3% — which the South African Reserve Bank has been pushing for — with a one percentage point tolerance band.
Earlier this year, the central bank said it would focus on the 3% mark as opposed to 4.5% , the mid point of its previous 3-6% target band, saying that internal and external analysis had shown that “our inflation target is too high and too wide”.
On Wednesday Godongwana said the one percentage point tolerance band provided flexibility to “accommodate any unexpected inflationary shocks”.
“This new target immediately replaces the previous target range of between 3% and 6% and will be implemented over the next two years,” he said.
“Over time, the lower target will decrease inflation expectations and inflation, creating room for lower interest rates. This supports household spending and business investment, boosting economic growth and job creation.”
He said the government strategy for faster growth and healthier finances continued to be anchored on:
- Maintaining macroeconomic stability.
- Implementing structural reforms.
- Building state capability.
- Supporting growth-enhancing infrastructure.
“Over the MTEF [medium-term expenditure framework] , debt-service costs will grow by 3.8% annually. This is a significant reduction from the 7.4% growth anticipated at the time of the 2025 budget,” he said, predicting that government debt would stabilise at 77.9% of GDP in 2025/26.
“We will also achieve a primary budget surplus of R68.5 billion – or 0.9% of GDP – this year. This will grow to R224 billion by 2028/29. The overall budget deficit will narrow from 4.5%of GDP in 2025/26 to 2.7% in 2028/29.”
He said the national treasury would continue to monitor the South African African Revenue Service’s tax collection performance for the remainder of the year and that this would inform “whether the R20 billion in additional tax increases for the 2026 budget, as earlier proposed, can be withdrawn”.
Godongwana however warned that the country faced a problem of illicit trade, which threatened the economy.
“The growing markets for illicit cigarettes and alcohol pose a serious risk,” he said.
Godongwana’s new fiscal projections seemed “credible and underpinned by relatively conservative assumptions”, Standard Bank economist Elna Moolman said.
“The key fiscal metrics were broadly as we expected, with treasury is gradually restoring SA’s fiscal sustainability. The single most important feature of this fiscal statement was the preservation of the debt-GDP peak this year, followed by a gradual downtrend,” she said.
“This is consistent with our long-standing view that government is committed to the planned fiscal consolidation.”
Trade union federation Cosatu however said it remained worried that the budget was not bold enough to significantly grow the economy.
“While appreciating the turnaround in many key parts of the state under government led by the African National Congress, in particular Eskom, Transnet, Metro Rail and the South African Revenue Service, we remain deeply concerned that the budget, including the MTBPS’ proposed adjustments, are not bold enough to take the economy from the 1% growth,” Cosatu national spokesperson Matthew Parks said.