• Despite the complexities of governing under a nascent Government of National Unity (GNU) and fresh off last year’s dramatic fiscal hiccup, when coalition tensions over a proposed value-added tax (VAT) hike forced a historic postponement of the budget speech, National Treasury has stayed firmly on course to deliver a peak in the debt ratio for the current fiscal year (albeit it at a higher level) and expecting a reduction thereafter.

• Government debt is still projected to stabilise in the current fiscal year (FY), at an upwardly-revised 78.9% of gross domestic product (GDP). This outcome underscores persistent fiscal discipline amid ongoing economic headwinds and political navigation challenges, paving the way for continued gains in investor confidence.

• The upward revision in the government debt ratio for FY2025/26 from 77.9% in the medium-term budget is the result of a reduction in nominal GDP forecasts owing to still modest real growth forecasts and a marked revision lower in inflation, associated with the lower inflation target announced in November 2025. However, the rand amount of gross government debt increased by R30 billion relative to the 2025 national budget and R50 billion relative to the 2025 medium-term budget, as Treasury decided to take advantage of stronger investor demand in markets and increased issuance in FY2025/26.

• Treasury remains steadfast in its fiscal consolidation efforts, aiming to lock in a primary surplus throughout the medium-term expenditure framework (MTEF) and targeting 2.3% of GDP by FY2028/29 (previously 2.5%).

• Updated medium-term projections from Treasury now dovetail neatly with consensus. Treasury’s 1.8% real GDP growth average between 2026 and 2028 aligns precisely with the median consensus in the Reuters February 2026 Econometer poll but is slightly below our estimate of 1.9%. Treasury’s revised estimate for headline inflation between 2026 and 2028 is, similarly, in line with the Reuters’ estimate and our forecast of 3.3%.

• Treasury estimates that the gross tax revenue overshoot for the current fiscal year will reach R21.3 billion (relative to the estimates presented in the 2025 national budget and R1.7 billion relative to the medium-term budget). The R21.3 billion includes a R15.3 billion overshoot on value-added tax (VAT), R7.8 billion overrun on corporate income tax and a surplus of R4.2 billion on dividends tax. Personal income tax (PIT) is nevertheless running R6.2 billion behind last year’s national budget estimates. The bulk of the overrun will be used to fund infrastructure.

• Gross tax revenues are expected to be R14.8 billion lower in FY2026/27 and R37.9 billion lower in FY2027/28, relative to the estimates outlined in last year’s national budget.

• SA’s consolidated budget deficit ratio is expected to narrow from 4.5% of GDP for FY2025/26 to 3.1% of GDP by FY2028/29. Government’s forecasts compare favourably with a 4.9% fiscal deficit projected for developed markets (DM) in 2026, which is expected to narrow marginally to 4.8% by 2028, as estimated by the International Monetary Fund (IMF) in its October 2025 Fiscal Monitor. The IMF predicts that the fiscal deficit ratio for emerging markets (EM) will narrow from 6.1% to 5.6% over the same period.

• Treasury estimates the gross government debt-to-GDP ratio will peak at a marginally higher 78.9% (previously 77.9% in the medium-term budget) in FY2025/26 before declining to 76.5% (previously 77%) by FY2028/29. This compares with an expected debt ratio of 77.3% for EMs in 2026, rising to 81% in 2028. Nevertheless, SA’s debt ratio is still significantly lower than the 111.8% estimated for DM in 2026, rising to an estimated 115.5% by 2028, as forecasted by the IMF.

• The government debt ratio itself holds up reasonably against global standards, yet the dramatic 55.9 percentage point (pp) escalation from FY2008/09 levels, combined with 3.1pp more of GDP eaten by interest payments, continues to put SA behind many EM peers. Yet, this pattern looks set to flip. If Treasury’s projections materialise, SA’s government debt ratio will stabilise this year and start edging lower over the medium term, unlike the ongoing rise seen across a number of DMs and EMs.

For more insights, read Momentum’s full commentary here.

ENDS