South Africa's October 2026 Medium-Term Budget Policy Statement marked an important milestone in the country's economic journey. For the first time in nearly two decades, government debt as a percentage of GDP has stabilised. However, while the country's finances are showing meaningful improvement, the outlook for economic growth remains weak. South Africa's debt-to-GDP ratio has risen steadily since the global financial crisis. Over this period, persistent budget deficits and weak economic growth forced government to borrow increasingly large amounts, with rising interest payments consuming a growing share of tax revenue.
October's budget suggests that this trend has finally turned. National Treasury now expects the debt-to-GDP ratio to decline gradually. The improvement is being driven by greater expenditure discipline, stronger tax collections and a growing primary budget surplus, which means government is collecting more revenue than it spends before interest payments. Although government will continue to run an overall budget deficit, this represents meaningful progress towards placing public finances on a sustainable footing. Stronger commodity prices have also supported tax revenues. However, this benefit may prove temporary, reinforcing the importance of maintaining expenditure discipline.
As investors become more confident in South Africa's ability to manage its debt, the risk premium they demand to hold South African government bonds can decline. Lower bond yields reduce government's borrowing costs over time, freeing up resources that would otherwise have been spent servicing debt. Greater fiscal credibility can also support the rand, reduce inflationary pressures and lower the cost of capital for businesses. These developments create a more favourable environment for private investment and economic activity.
The missing ingredient is economic growth. Despite the encouraging fiscal developments, South Africa's economic outlook remains subdued. Treasury reduced its forecast for real GDP growth in 2026 from 1.6% to just 1.2%. At this rate, the economy is expanding too slowly to meaningfully reduce unemployment, lift living standards or generate the tax revenues required to address the country's substantial development needs. Weak growth also makes fiscal consolidation more difficult. A faster-growing economy naturally generates more tax revenue and reduces the debt burden relative to GDP, without necessarily requiring higher tax rates or further spending restraint.
South Africa therefore faces a challenge: having made progress in stabilising its finances, it now needs to accelerate the structural reforms necessary to lift its long-term growth potential.
What needs to happen next? The priorities are reasonably well understood. The difficulty lies in implementation. Improving the reliability and affordability of electricity remains essential, alongside continued reform of the energy sector to encourage private investment. Although electricity supply has improved, a competitive economy requires a dependable and cost-effective energy system. Transport and logistics infrastructure is equally important. Inefficiencies at ports and along freight rail networks raise the cost of doing business, constrain exports and undermine the competitiveness of South African industries. Accelerating private-sector participation and improving operational performance at Transnet could unlock significant economic activity. Municipal infrastructure and service delivery also require urgent attention. Unreliable water supply, deteriorating roads and weak local government administration impose substantial costs on businesses and discourage new investment. Beyond infrastructure, South Africa needs to address regulatory uncertainty, excessive administrative barriers, skills shortages and the high costs associated with crime. Improving the ease of doing business and creating a more predictable investment environment would help attract the domestic and foreign capital needed to expand productive capacity. Importantly, many of these reforms do not require substantial additional government spending. They require more effective institutions, better execution and a greater willingness to mobilise private-sector investment.