South Africa’s national budget process for 2025/26 was finally completed on 21 May, following two unsuccessful attempts in February and March. Initially, the refusal by the DA and other members of the government of national unity (GNU) to approve the traditional February reading of the budget caused concern over the hegemony within the GNU. However, in hindsight, the whole exercise may have instilled a sobering realisation amongst leaders of the largest GNU partner (the ANC) that consensus politics is now the order of the day. Furthermore, the delay is widely regarded as a small price to pay for avoiding a VAT rate increase.
Key aspects of the final version of the budget are:
- Total revenue estimates were revised down marginally to R2.20 trillion. Importantly, the potential for tax debt collection has not been included in the revenue estimates. According to a report by Investec, this could lead to additional revenue of between R20 billion and R50 billion (in 2024/25, SARS collected R95 billion in debt owed by taxpayers).
- Expenditure in the consolidated fiscal framework is also planned marginally lower, at R2 578.7 billion – only R13.6 billion less than in the March version of the budget. Additional tax revenue proposals from the absence of relief for inflation adjustments to tax brackets and an inflation adjustment to the fuel levy will comfortably cover the small hike in expenditure.
- The gross borrowing requirement is R604.8 billion, which is expected to decline to R446.9 billion in 2026/27, mainly due to further fiscal consolidation and a substantial revenue increase on the back of higher economic growth
Public debt – no crisis at this stage
Several economists have raised concerns over the high and increasing level of public debt in South Africa. Whilst this indicator always requires a watchful eye, two observations should be borne in mind before ringing the alarm bells. Firstly, South Africa’s public debt/GDP ratio is not out of kilter with many emerging market peers nor several key trading partners, as illustrated by the graph below.
Exhibit 1 | Gross public debt/GDP ratios – selected countries
Source: World Bank, Trading Economics. Data as at April 2025. Past performance is not a reliable guide to future performance. For illustrative purposes only and not indicative of any investment.
Secondly, the proportion of gross foreign debt has remained just above 8% of GDP since 2022 and is very low by international standards. For countries in South America, this ratio ranges from 14% for Chile to 40% for Uruguay and 62% for Argentina.
Raising economic growth
A country’s national budget is not a static document, as it is always premised on assumptions regarding the factors that influence economic growth, which invariably filter through to the variety of sources of taxation revenue. It is, therefore, not surprising that none of the global credit ratings agencies have bothered to provide detailed comments on South Africa’s latest budget. S&P Global has affirmed South Africa’s sovereign debt rating, whilst maintaining a positive outlook, and Moody’s expects the current focus on fiscal consolidation to remain intact. Furthermore, capital market reaction was favourable, with the rand strengthening against the US dollar and dipping to below R18 for the first time this year.
Progress with the implementation of policies aimed at stimulating growth will ultimately determine whether fiscal stability can be enhanced or not. It is a well-worn truism of public finance theory that employment creation provides the key to fiscal stability via a two-pronged effect: Firstly, through increasing the value of the denominator in the public debt/GDP ratio (due to a higher level of consumption expenditure) and secondly via a broadening of the tax base, which reduces the incremental increase in the public debt.
In closing
While the delayed finalisation of South Africa’s 2025/26 national budget may have raised initial concerns about political cohesion within the Government of National Unity, it has ultimately underscored a maturing democratic process and a growing commitment to consensus-driven governance. The avoidance of a VAT increase, modest downward revisions in expenditure, and a manageable borrowing strategy all point to a budget that balances prudence with the need for growth. With favourable market reactions and cautious optimism from ratings agencies, the stage is now set for the government to turn its attention to the real challenge: accelerating economic growth and job creation. Only through sustained, inclusive growth can South Africa secure long-term fiscal stability and build a more resilient future.
