Lullu Krugel , Chief Economist and Sustainability Leader, and Kyle Mandy, Tax Policy Leader; at PwC South Africa

On 25 February, Finance Minister Enoch Godongwana is expected to deliver the 2026 National Budget Speech. In anticipation of the outcomes, PwC has forecasted various standpoints around what we can expect regarding the fiscal landscape, expenditure, and tax revenues, drawing attention to the decisions poised to impact the nation’s economic growth.

Lullu Krugel , Chief Economist and Sustainability Leader, PwC South Africa, highlights that the firm anticipates Budget 2026 will provide clarity on how geopolitical risks, including US tariff pressures, AGOA uncertainty, and global trade tensions, will be factored into policy planning, alongside continued progress on structural reforms in energy and logistics.

“Our real Gross Domestic Product (GDP) forecasts for 2026 stand at 1.2%, with a gradual improvement expected to 1.3% in 2027 and 1.5% in 2028. Our nominal GDP growth forecast, which includes the effects of inflation, is higher at 5.3% in 2026, rising to 5.7% in 2027 and 5.9% in 2028. While the economy is expected to expand steadily over the medium term, a significant portion of overall growth continues to reflect pressures rather than a sharp increase in real output,” Krugel adds.

Fiscal balance

Managing the fiscal balance is critical to South Africa’s credibility in the investor community, particularly following Standard & Poor’s (S&P’s) historic upgrade in November 2025, the first in nearly two decades. PwC South Africa anticipates the National Treasury (NT) will maintain its commitment to fiscal consolidation and provide a credible path to primary surpluses that can stabilise and ultimately reduce the debt ratio.

The Medium-Term Budget Policy Statement (MTBPS) 2025 projected steady fiscal consolidation, with the consolidated budget deficit narrowing from 4.7% of GDP in FY2025/26 to 2.9% by FY2028/29, and the primary budget surplus improving from 0.9% to 2.5% over the same period. Strong revenue collections, driven by VAT and corporate income taxes, along with a lower interest rate environment, support this positive outlook.
However, risks remain from slower-than-expected economic growth and potential contingent liabilities, which could slow progress.

“Reflecting these concerns, our forecasts show a more gradual deficit reduction, from -4.9% in FY2025/26 to -3.3% by FY2028/29, highlighting that while fiscal consolidation remains on track, its pace may be slower than the NT anticipates,” says Kyle Mandy, Tax Policy Leader, PwC South Africa.

Expenditure pressures

While constraints on economic growth and the revenue outlook continue, spending reallocation should be prioritised. Budget 2025 highlighted a shift from consumption spending to capital investment, with capital payments projected to rise 7.5% annually, which is the fastest-growing expenditure item.

The USAID funding termination (affecting approximately 40 health projects and 8,500 PEPFAR-funded staff) creates a funding gap that will require fiscal accommodation or domestic resource mobilisation. The Social Relief Distress (SRD) grant extension to 2027 adds approximately R36–38bn annually to baseline expenditure.

“We predict continued restraint on the public sector wage bill, with the government’s early retirement programme targeting 2,200 SANDF members and broader payroll reforms. We expect infrastructure investment to remain a priority, with the R15 billion infrastructure bond issuance proceeding” says Krugel.

Debt maintenance

“South Africa’s debt burden remains elevated at 77.9% of GDP,” Krugel stated. “We anticipate that the NT will confirm the debt stabilisation achieved in FY2025/26, articulate a clear path to reducing the debt ratio towards 70% in the medium term and 60% in the long term, and provide an update on the fiscal anchor policy expected to take effect from April 2027.”

Tax revenue

In MTBPS 2025, the NT estimated tax revenues for 2026/27 at R2,143bn, or growth of 6.9% on forecast nominal GDP growth of 4.9%. This includes the R20bn of unspecified tax increases for 2026/27 pencilled into the budget.

Considering the expected revenue collections for 2025/26, increases by the NT are not expected.

Tax revenues for 2026/27 are expected to come in at around R2,005bn, and with an expected tax buoyancy of 1.2 for the year (in the absence of any tax increases or decreases), it is predicted that the tax revenues for 2026/27 will amount to around R2,128bn before any tax changes.

This is slightly lower than what was estimated in MTBPS 2025 (including the pencilled-in tax increases), but it is anticipated that any impact on the fiscal balance will be limited.

“While the 2026 National Budget approaches, these predictions demonstrate the need for a sustainable fiscal environment in order to accelerate economic stability, investor confidence, and long-term sustainable growth. This will allow the government to manage economic disturbances effectively, reduce borrowing costs, and provide the necessary space for public investment in infrastructure and services,” concludes Mandy.

ENDS