Investec chief economist Annabel Bishop.
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Unpacking Budget 2026, debt stabilisation is projected as expected this year, and gross debt is expected to peak at 78.9%of gross domestic product (GDP) in the current tax year, then drop below 75%/GDP in five years’ time as expected. Revenue lifted by R29bn, withdrawing the R20bn tax proposal for 2026/27l, and the rand was little changed at R15.88/USD.
There are no proposals for tax increases over the Medium-Term Expenditure Framework period (MTEF) either, of 2026/27 to 2028/29, save the counterbalancing effect of a R1bn rise in the carbon fuel levy but a R1bn inflation drop in the general fuel levy. This is as revenue was adjusted upwards in the MTEF as well, now running at a growth rate of between 5.0% y/y to 6.0% y/y per year, all main budget figures. The revenue overrun in 2026/27 with this year’s (2025/26) is close to R55bn resulting in tax relief (for bracket creep) as expected for 2026/27.
For this year, 2025/26, which is near complete, debt service costs are revised lower, by about R6bn, the general fuel levy stayed unchanged and less than R1bn increase in public sector costs, adding to the positive outcome overall. South Africa runs a primary balance surplus over the forecast period, indicative of fiscal sustainability improving. The budget deficit is projected to fall from -4.5%/GDP this year, to -3.1% of GDP by 2028/29.
Credit ratings upgrades are expected from S&P (currently BB) in the next 18 months and by Fitch (BB-) and Moody's (BB equivalent) over three years if debt/GDP nears 75% as economic growth accelerates to 3.0% y/y by 2030/31. A fiscal anchor would help achieve fiscal consolidation and credit rating upgrades, and will be proposed in the Medium-Term Budget Policy Statement later this year.
Instituting a credible fiscal anchor is key to improving the governance of state finances, which have also been eroded by the pressure of state capture. Reducing the debt (and deficit) to GDP ratios is key for strengthening the bond market..
South Africa runs a primary balance surplus over the forecast period, indicative of fiscal sustainability improving. The budget deficit is projected to fall from -4.5%/GDP this year, to -3.1% of GDP by 2028/29.
The government lifted its growth forecast for 2025, to 1.4% y/y from 1.2% y/y to 1.6% y/y this year from 1.5% y/y, with 2028 unchanged. It lowered its inflation forecast this year to 3.4% y/y from 3.2% y/y, 2027 and 2028 unchanged at 3.3% y/y and 3.2% y/y. This has had the impact of reducing the nominal GDP outcome and the Budget notes “(t)he higher debt peak is attributed to weaker nominal GDP growth and increased borrowing in 2025/26”.
For the usual increase in sin taxes “(e)xcise duties on alcoholic beverages and tobacco products increase in line with inflation”. “Effective 1 April 2026, the compulsory VAT registration threshold increases to R2.3 million”.
While a good budget from a financial market perspective, the outcome was largely factored in for the rand, although the JSE gained, with revenue benefiting from windfalls from the jump in precious metals prices and agricultural production
Annabel Bishop is Investec's chief economist.
*** The views expressed here do not necessarily represent those of Independent Media or IOL.
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