A Clearer Path Toward Stability, Growth and Investment
South Africa’s economic outlook took a more confident turn today as Finance Minister Enoch Godongwana presented the 2025 Medium Term Budget Policy Statement in Cape Town. The statement outlined a plan to strengthen public finances, improve service delivery and stimulate private sector investment. The overall tone of the budget is one of cautious optimism and renewed fiscal discipline.
At the centre of the announcement is a landmark policy decision. South Africa’s inflation target has been lowered to 3% with a tolerance band of 1% point above or below this level. This replaces the previous range of 3% to 6% and brings the country in line with global standards. The lower target is expected to keep inflation expectations under control, reduce borrowing costs over time and create a more predictable environment for business and investment.
Economic growth remains modest but the direction is improving. Treasury forecasts growth of 1.2% in 2025 and an average of 1.8% between 2026 and 2028. Global economic uncertainty and slower trade continue to affect performance but the government’s structural reforms in energy, transport, water and local governance aim to unlock future growth potential. These reforms focus on addressing the practical obstacles that limit productivity and investor confidence.
The fiscal outlook is the strongest in several years. The national budget deficit is projected to narrow from about 4.5% of gross domestic product in the current year to approximately 2.7% by 2028. Gross debt is expected to stabilise at roughly 77.9% of GDP which reassures investors that borrowing is being contained. The primary budget surplus, which reflects government finances before interest costs, stands at R68.5 billion this year and is expected to increase to R224 billion by 2028. This consistent improvement indicates a firm commitment to sound fiscal management.
Revenue has performed better than expected. Collections for 2025 and 2026 are around R19.3 billion higher than initially estimated. The improvement is supported by strong corporate income tax, value added tax and dividend receipts as well as lower than expected refund payments. The South African Revenue Service has been given an additional R4 billion to strengthen collection capacity. If this performance continues, government may withdraw the planned R20 billion tax increase for 2026. At the same time authorities are intensifying efforts to combat illicit trade in cigarettes, alcohol and fuel which is estimated to have cost the fiscus about R40 billion since 2020.
Infrastructure investment is a clear focus of the budget. Capital expenditure is now the fastest growing area of government spending, increasing by about 7.5% annually over the medium term. A new infrastructure bond will be launched soon to raise a minimum of R15 billion to finance priority projects. A credit guarantee facility of R2 billion will also be created to attract private capital for electricity transmission projects, particularly those that will link renewable energy sources to the national grid. In addition, R4.1 billion has been allocated for flood recovery work in KwaZulu Natal, Mpumalanga and the Eastern Cape to repair schools, clinics, pipelines and substations.
Provincial and municipal governments will see larger allocations to ensure that essential services are maintained. The share of nationally raised revenue will increase to 4.24% for provinces and 9.7% for municipalities over the medium term. Treasury has made it clear that where municipalities are unable to deliver, implementation will shift to agencies such as the Development Bank of Southern Africa and the Municipal Infrastructure Support Agency to maintain service delivery.
Social spending continues to be a priority. Consolidated government spending will rise from R2.6 trillion this year to R2.9 trillion by 2028. About 61% of non-interest spending will be directed toward education, health and social protection. Treasury also announced a new Targeted and Responsible Savings initiative that will save R6.7 billion by closing ineffective programmes and cutting waste. A new public payment dashboard has been launched to show supplier payments made by government departments, improving transparency and accountability.
For South African businesses and investors the key message is one of progress and renewed stability. Lower inflation and tighter fiscal management point to a more predictable economic environment. The focus on infrastructure creates significant opportunities in energy, transport, water systems and municipal services. Stronger revenue performance and stricter tax enforcement will also support a fairer and more transparent business landscape.
Although economic growth remains below potential, the 2025 Medium Term Budget demonstrates a serious commitment to reform and sustainable management. The combination of a lower inflation target, stronger public finances and expanding infrastructure investment provides a platform for long term stability and private sector growth. For investors and companies alike the direction is clear and the outlook is gradually improving.
Summary
- The inflation target has been lowered to 3% with a 1% tolerance band.
- Economic growth is forecast at 1.2% for 2025 and 1.8% on average through 2028.
- The budget deficit will narrow from 4.5% to 2.7% of GDP by 2028.
- Debt will stabilise at about 77.9% of GDP.
- Revenue has exceeded projections by R19.3 billion.
- A new R19 billion infrastructure bond and a R2 billion credit guarantee fund will support development.
- R4.1 billion has been set aside for disaster relief in flood-affected provinces.
- Provinces will receive 4.24% and municipalities 9.7% of national revenue.
- 61% percent of non-interest spending goes to education, health and social protection.
Written by: RVN Chartered Accountants
This article is published by RVN Chartered Accountants Incorporated as general commentary. It is intended for information purposes only and should not be regarded as legal or financial advice. While every reasonable effort is taken to ensure the accuracy and soundness of the contents of this publication, neither the writers of the articles nor the publisher will bear any responsibility for the consequences of any actions based on information or recommendations contained herein.