National Treasury’s third 2025/26 budget attempt dropped the contentious VAT increase after widespread criticism, leading to a modest rise in public debt forecasts (77.4% of GDP, up from 76.2%).
To offset lower GDP growth forecasts (1.4% vs. 1.9%), the fuel levy was raised, tax brackets frozen, and spending cuts hit wasteful areas but also health, education, and social grants.
The budget deficit is now forecast at -4.8% of GDP, with debt stabilisation reliant on R1.03 trillion in infrastructure investment, though past failures raise doubts.
Markets remained stable, with USD-ZAR below 18.0000, but global fiscal risks and potential GNU reform disappointment could expose bonds to higher yields if fiscal discipline slips.
Baseline view
The 2025/26 Budget 3.0 underwhelmed, despite scrapping the VAT hike, as it lacked bold growth reforms. Infrastructure investment and greater private sector inclusion are steps forward, yet insufficient to alter South Africa’s fiscal path.
The plan banks on optimistic growth and spending cuts that are unlikely before 2026 municipal elections, risking debt nearing or breaking above 80% of GDP.
High real yields in SA and GNU reform optimism may continue to attract capital, but failure to implement structural reforms could spark a negative repricing of South Africa’s fiscal risk despite shifting global monetary conditions.
