The Medium-Term Budget Policy Statement (MTBPS) shows the SA government’s “commitment” to gradual fiscal consolidation, “which should bring debt closer to stabilising”, Fitch Ratings said on Friday.
“Incorporating the revised financing strategy into our projections may help to stabilise gross debt, in our view. However, we also see risks to the government’s projections,” the ratings agency said in a statement.
Fitch expects real GDP growth of 1.2% in both 2026 and 2027, slower than the government’s forecasts of 1.5% and 1.8%, respectively, “largely due to our more conservative forecast for gross fixed-capital formation”.
“This will weigh on potential revenue growth and have a denominator impact on fiscal metrics,” Fitch said. “We also have more conservative assumptions on savings on interest costs from lower inflation, as the long average maturity of South Africa’s debt means it should take time for lower yields to reduce interest costs significantly, even if yields move lower as we expect.”
The agency noted the MTBPS projects inflation will average 3.3% in 2027, against 4.3% in the May budget, close to its own forecast of 3.6% in September.
The MTBPS signalled alignment between the monetary and fiscal frameworks formally by adopting a 3% inflation target with a one percentage point tolerance band, bringing long-term predictability to macroeconomic policy.
“We believe the inflation target change will enhance macroeconomic stability, aligning SA’s inflation more closely with that of its trading partners and alleviating structural downward pressures on the currency,” Fitch said.
The MTBPS, tabled on Wednesday, signalled a shift in SA’s fiscal outlook. Against the backdrop of subdued economic growth, the statement outlines marginal yet credible improvements to the fiscal framework. These include a narrower budget deficit, a growing primary surplus, and a projected peak in gross loan debt at 77.9% of GDP in 2025/26, declining to 77.7% and 77.4% in the subsequent financial years, respectively.
“These figures are slightly higher than in the May budget and closer to Fitch’s baseline projections when we affirmed SA’s rating at ‘BB-’ with a stable outlook in September, of 77.4% in FY25, 77.8% in FY26 and 78.4% in FY27.”
Stronger-than-expected tax revenue, particularly from VAT and corporate income tax, enabled government to improve its fiscal position without resorting to additional borrowing or major expenditure cuts, reinforcing policy credibility.
Treasury’s decision to reduce bond issuance and avoid new bailouts or pre-election spending splurges supports the perception of greater fiscal discipline.
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