IMF backs South Africa’s primary surplus drive as key to stabilising soaring debt

The International Monetary Fund (IMF) has thrown its support behind South African government’s budget surplus target, calling it “critical” for stabilising debt over the medium term.

This comes as South Africa’s drive to achieve its first sustained primary surplus in over a decade has emerged as the central pillar of government’s plan to stabilize spiralling public debt and rebuild fiscal credibility.

The National Treasury's fiscal strategy aims to anchor fiscal policy by stabilising debt and growing the primary budget surplus to R68.5 billion, or 0.9% of Gross Domestic Product (GDP), this year.

Treasury is targeting a primary surplus of1.5% of GDP in the 2026 financial year and rising to 2.3% by 2028, but this is a complex balancing act between tightening expenditure, bolstering revenues, and fending off deep social pressures.

A primary surplus, which measures the government’s fiscal balance before interest payments, has taken on outsized significance as debt-service costs continue to consume an increasingly large share of the national budget.

Interest costs now exceed spending on policing and nearly match allocations for health—an unsustainable trajectory that Treasury officials warn could crowd out essential services unless the country begins to rein in its borrowing requirements.

"To reach a primary surplus of 1.5% of GDP next year, as the authorities aim, a fiscal adjustment of around ¾ percent of GDP will be needed relative to staff’s baseline. Locking in savings brought by favorable near-term revenue dynamics, together with additional reforms, can support this effort," said the IMF.

"In the medium run, the mission considers that a primary surplus target of 3% ofGDP would be needed to bring debt down to around 70% of GDP by 2033, as the authorities plan. This will necessitate an additional fiscal effort of at least ½ percent of GDP per year in FY27-28."

The IMF said maintaining this primary surplus until debt declines to 60% of GDP can help bolster policy buffers against shocks and further reduce debt costs.

The IMF's latest assessment notes that while the government’s fiscal framework is directionally appropriate, existing revenue projections may prove too optimistic and expenditure may fall more slowly than anticipated, leaving a risk that South Africa’s primary surplus could rise too gradually to bend the debt curve.

"The authorities aim to reach these targets through higher revenues and lower spending, while safeguarding public investment and social spending. Under the IMF baseline, however, in the absence of additional well-specified fiscal reforms, revenues are projected to be somewhat less buoyant and public spending to decline more gradually than the authorities forecast," it said.

"As a result, the primary surplus is expected to increase more slowly and be insufficient to stabilize public debt over the medium run." 

The IMF said the credibility of South Africa’s fiscal consolidation plan will depend on whether government can advance a set of concrete, durable and growth-enhancing reforms without undermining support for vulnerable households.

Central to this effort is reshaping how the State allocates and manages public resources, an undertaking the IMF said is critical for achieving the primary-surplus targets and restoring long-term debt sustainability.

A key pillar of the recommended approach is a comprehensive reprioritisation of spending to improve efficiency, fairness, and public trust. Building on ongoing spending reviews, the IMF mission has urged authorities to accelerate reforms across several fronts.

These include finalising regulations for the new Procurement Act to strengthen internal controls and transparency, an essential step in reducing corruption and ensuring better value for money. Reforming the public-sector wage bill also remains a priority, with proposals ranging from incentivised early retirement to stricter payroll integrity measures and performance-linked remuneration.

In addition, the Fund recommends that transfers to State-owned enterprises be tied more explicitly to measurable reforms and operational improvements, while low-priority or duplicated programmes and entities should be streamlined.

Meanwhile, the IMF revised updwards its growth forecast for South Africa, projecting that the economy will now rebound to 1.3% in 2025 from a previous forecast of 1.1%, rising to 1.4% in 2026 from a previous forecast of 1.2%.

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