Sanisha Packirisamy, Chief Economist at Momentum Investments

A larger primary surplus and a narrower deficit → but weaker economic outlook raises the debt ratio

• Although tax revenues are R61.9 billion lower than the March 2025 Budget, primarily owing to the reversal of the value-added-tax (VAT) and weaker economic forecasts, the tax burden (tax to GDP ratio) is expected to average the Medium-Term Expenditure Framework (MTEF) at a higher 25.5% from a previous 25.3% in Budget 2.0.

• Although Treasury is forecasting a higher peak in the gross debt ratio of 77.4% from 76.2% in Budget 2.0 (and 75.5% in the October 2024 Medium Term Budget), the timing of the peak remains constant for the current fiscal year (FY). The Reuters consensus had pencilled in a lower peak of 77.25%, but later in FY2026/27. Moreover, the gross debt figure is expected to be lower at R6 090.5 billion for the current fiscal year from R6 094.2 billion in Budget 2.0. In the outer year of the MTEF, gross debt is expected to reach R6 819.6 billion from R6 814.9 billion in Budget 2.0. Government bond issuance remains unchanged which should appease fixed income markets.

• The main budget deficit is expected to remain at an average of 3.8% of GDP in the MTEF, relative to Budget 2.0, with a slightly wider deficit of 4.6% pencilled in for the current FY from a previously estimated 4.4% in March 2025. Meanwhile, the deficit ratio is expected to narrow to a smaller 3.2% by FY 2027/28 from 3.3% in Budget 2.0.

• Treasury’s de facto fiscal target, the primary surplus, remains on track to reach 2.1% (2% in Budget 2.0) by FY 2027/28. Further deliberations are ongoing to formalise a fiscal target in South Africa.

• Due to a more uncertain backdrop, Treasury has raised its forecast on the country’s foreign risk premium from an average of 2.7% between 2025 and 2027 in Budget 2.0 to 3.2%

 Rating agencies could sit on their hands for now

• Previously, rating agencies flagged an improvement in the country’s growth and political prospects as positive developments for SA. However, since then, we have seen a reversal in political uncertainty and growth forecasts have moderated. Rating agencies could maintain a wait-and-see approach before shifting SA’s rating profile.

You can read Momentum Investments’ full summary here.

ENDS