Mid-Term Budget Policy Statement 2025 and economic outlook

Earlier in 2025, South Africa’s National Budget was postponed from February to May due to disagreements among the Government of National Unity (GNU) partners over a proposed 2% VAT increase. This period of uncertainty placed additional pressure on Finance Minister Enoch Godongwane, who successfully delivered the Mid-Term Budget Policy Statement (MTBPS) in November. The Budget was generally well received by markets and investors, signalling a measure of restored confidence in fiscal leadership.

Fiscal and policy outlook

The MTBPS confirmed the government’s ongoing commitment to fiscal consolidation. The debt-to-GDP ratio is expected to peak at 77.9% this year, slightly above the May projection of 77.4%, before gradually declining. This stabilisation is supported by a primary budget surplus of 0.9%, projected to rise to 2.5% over three years. These projections indicate that government revenues, excluding debt service costs, exceed expenditure, a key factor in reducing the overall fiscal burden.

The MTBPS also reflects stronger policy alignment both within the GNU and between the National Treasury (NT) and the South African Reserve Bank (SARB). The formal adoption of a lower inflation target of 3%, with a tolerance band of ±1%, aligns monetary and fiscal policy objectives, strengthening credibility. This alignment is particularly relevant for investor confidence and provides a clear framework for both macroeconomic outlook and market expectations.

Economic reforms and market response

Ongoing economic reforms are evident throughout the MTBPS. Although future nominal GDP and revenue growth are projected to be lower as a result of a lower inflation target, these effects are partially offset by lower expenditure, reduced borrowing costs, and a more moderate impact on the cost of living. Infrastructure spending has been prioritised, with the announcement of an infrastructure bond and an investment mechanism aimed at attracting private sector participation in logistics and other priority projects. Additional reforms include procurement modernisation, efforts to stabilise the wage bill, and the establishment of a fiscal anchor to guide future budgetary discipline.

On the revenue side, total fiscal year collections were revised R20 billion higher than the May Budget, supported by higher VAT and corporate income tax receipts, alongside improved efficiency at SARS. Future revenue may exceed projections due to potential gains in corporate income tax, particularly from stronger mining revenues, and continued improvements in collection efficiency.

On the expenditure side, total spending is slightly lower than projected, with increased allocations for infrastructure, health care, and education. The fiscal deficit is expected to reach 4.5% of GDP this year, marginally lower than the May projection of 4.6%, and is projected to decline to 2.7% over three years.
Strong cash buffers and funding progress have allowed the government to reduce weekly nominal bond issuance by R750 million, indicating lower future borrowing needs. Part of the borrowing requirement will be met by drawing R31 billion from the Gold and Foreign Exchange Contingency Reserve Account (GFECRA).

Market responses were broadly positive, with the 10-year bond yield declining by around 13 basis points, the yield curve flattened, and the rand strengthened by 0.5% to approximately R17/US$1. The JSE All Share Index rose 1.5% on the day.

Attention now shifts to the upcoming S&P Global Ratings review, where the MTBPS measures could lead to upgrades. The SARB’s Monetary Policy Committee meeting on 20 November is also notable, with the potential for a repo rate cut to 6.75%, supported by low inflation, a stronger rand, soft local growth, and declining oil prices.

Labour market and outlook

Labour market data indicate moderate improvement. The Quarterly Labour Force Survey showed unemployment declining to 31.9% from 33.2% in Q3, supported by the addition of 248,000 jobs, mainly in the Western Cape, KwaZulu-Natal, and Gauteng. Job growth occurred primarily in construction, services, and trade, while manufacturing and finance recorded losses.

Overall, the MTBPS, together with recent domestic and international developments, indicates moderate fiscal and economic improvement. Structural reforms, fiscal consolidation, and policy alignment, alongside supportive market conditions, create a foundation for stability and measured growth in South Africa through 2026.