Medium Term Budget Speech Preview -Debt Dilemmas and GNU Gridlock

As South Africa’s Government of National Unity (GNU) navigates its turbulent first year, Finance Minister Enoch Godongwana faces a high-stakes moment with the Medium-Term Budget Policy Statement (MTBPS) slated this week for Wednesday November 12.

The annual fiscal checkpoint arrives with a lingering acrimony from the February 2025 Budget Review, where the Democratic Alliance (DA), the ANC’s key coalition partner, vetoed proposals for unfettered spending and a VAT hike from 15% to 15.5%, branding them “tone-deaf” to households squeezed by high utility increases, interest rates and mushrooming food costs while wages for many remain stagnant.

Godongwana’s concessions in May, scrapping the VAT increase after multiple revisions, secured the successful passage of budget approval, but exposed coalition fractures, setting a precarious stage for this week’s address.

For business leaders eyeing investment in Africa’s most industrialised economy, the MTBPS isn’t just a policy update; it’s a litmus test for fiscal credibility, growth revival, and debt sustainability. With GDP growth limping at 0.6% in Q2 2025 and unemployment at 33.5%, the statement must balance austerity with ambition, or risks further erosion of investor confidence.

Unpacking the FY 2025/26 Budget: On Track, But Anomalies Lurk

South Africa’s FY 2025/26 budget, approved in May after GNU horse-trading, totals R2.38 trillion in spending, a 2.1% real-term cut from the prior year, targeting a primary deficit of 1% of GDP and an overall deficit narrowing to 4.6%.

Revenue projections currently stand at R1.73 trillion, driven by a 6.3% nominal GDP growth assumptions, while expenditure prioritises social grants (R266 billion, up 4.5%), debt service (R414 billion, 17% of outlays), and infrastructure (R1.2 trillion over MTEF, focused on energy and logistics). This figure may however be projecting an upside not likely, with current inflation at 3.4% and GDP growth of only around 1.2% providing a nominal GDP growth rate of only 4.6%.

The framework emphasises “fiscal consolidation” through spending restraint: public sector wage bill frozen at 32% of non-interest spending, procurement efficiencies saving R20 billion, and a R12 billion dividend from SOE reforms like Transnet unbundling.

Is the fiscal year on track for these reduced spending goals? Early indicators suggest yes, albeit narrowly.

Treasury’s October 2025 revenue update shows collections at R1.32 trillion through September—R20 billion ahead of the revised May target, buoyed by personal income tax (PIT) over-performance from bracket creep and provisional payments. Expenditure undershot by 1.5% in Q1-Q2, with capital spending at 85% of projections, signaling discipline amid GNU-mandated audits on wasteful projects. Capital Economics notes Godongwana is “on course to better the fiscal targets,” with the consolidated deficit potentially dipping to 4.3% if trends hold.

Yet anomalies threaten this trajectory. Freight logistics bottlenecks have resulted in rail volumes down 12% Y-o-Y and have inflated contingency funds by R15 billion, while Eskom’s R50 billion liquidity support (despite IPP ramps) strains the wage-freeze narrative.

Unforeseen election costs and drought relief added R8 billion in off-budget pressures, prompting whispers of a “stealth spending creep.”

For corporates, these signal risks: If anomalies like SOE bailouts escalate, Treasury may pivot to alternative revenue hikes, personal tax thresholds frozen again (effective rate rise for middle earners) or sin taxes on booze/tobacco (up 6-8% proposed). Business audiences should watch for “efficiency dividends” masking reallocations, potentially crowding out private capex in renewables and ports.

Debt Escalation and Revenue Shortfalls: A Vicious Cycle

National debt has ballooned since January 2025, highlighting South Africa’s fiscal fragility. Gross debt stood at R4.85 trillion (73.8% of GDP) at FY24-end. By September 2025, it had hit R5.28 trillion (75.1% of GDP), up 8.9% Y-o-Y, as per SARB data. This escalation, a R430 billion added in nine months, stems from a R200 billion primary budget deficit and R150 billion in interest (now 12% of revenue, vs. 8% in 2020).

Projections peg end-2025 at 77.4%, climbing to 78.4% in FY26, excluding local government liabilities (pushing consolidated to 79.5%). Bond yields have spiked to 10.5% for 10-year paper, adding R30 billion annually in costs leading to the SARB governor holding inflation rates higher for longer than sensible in a push to lower bond yields, but hurting economic growth.

Any revenue shortfalls could exacerbate this. SARS targeted R1.78 trillion gross collections. As of the end of September 2025, SARS revenue collection was reported to be approximately 2% (R18 billion) higher than the initial estimates. 

However, the collections are reportedly falling short of a higher, more ambitious target set by the Finance Minister, Enoch Godongwana, aimed at raising additional revenue to avoid future tax hikes and ease fiscal pressures. The initial 2025/2026 baseline revenue estimate presented by the Minister was R1.986 trillion. 

IMF Red Flags: Debt as Growth Anchor

The IMF’s October 2025 Fiscal Monitor amplifies these alarms, projecting South Africa’s debt at 88% of GDP by 2030 without reforms—far above the 70% emerging-market threshold. In its February 2025 Article IV, the Fund slashed SA’s 2025 growth to 1.0% (from 1.5%), citing debt’s “fiscal drag”: Every 1% GDP debt rise shaves 0.2% off growth via higher taxes and cuts. Era Dabla-Norris warned: “South Africa needs bold steps to control the public purse… persistent deficits risk a vicious cycle of instability.” Sub-Saharan peers grow at 4.1%, but SA lags as the sole economy with shrinking real per-capita GDP in 2025-26. The IMF urges revenue mobilization (2% GDP via base-broadening) and expenditure rationalization, echoing calls for SOE privatization to free R100 billion.

MTBPS Priorities: Consolidation with a Growth Twist

For business stakeholders, the MTBPS must prioritise three pillars: Debt containment, revenue resilience, and investment ignition. First, the approach by the minister should affirm fiscal anchors – target a 4.2% deficit, with R30 billion in additional efficiencies (e.g., digitising grants to curb leaks). Second, address shortfalls via targeted hikes: Excise on luxury imports (yielding R15 billion) over broad VAT, plus CIT incentives for green capital expenditure. Third, catalyze growth: Allocate R50 billion to freight/logistics (e.g., PRASA revival) and R20 billion to skills for AI/renewables, aligning with Operation Vulindlela.

Expect Godongwana to strike a pragmatic tone: Preview narrower deficits (per Capital Economics), consumer relief via zero-rated food expansions, and GNU wins like IPP procurement (adding 6GW by 2027). He may signal R10-15 billion in contingency buffers, while touting AfCFTA gains (projected R100 billion exports). On debt, anticipate stabilisation, with debt set to peak at 77% with bond roadshows to calm yields. Business dialogues, like the ANC’s post-MTBPS dinner, hint at private-sector buy-in via PPPs.

Hurdles to Consensus: Politics Meets Economics

Godongwana’s path is strewn with obstacles. GNU dynamics remain volatile: The DA demands spending vetoes and SOE audits, while ANC allies (e.g., COSATU) push back on wage caps, risking another February-style standoff. External shocks such as US tariffs under Trump 2.0 could slash exports 10%, as per Investec’s projections and may force reactive hikes, alienating markets. Domestically, revenue misses could trigger a R50 billion adjustment, testing coalition arithmetic in Parliament.

Economically, anomalies like Eskom’s R254 billion debt (R50 billion Treasury exposure) loom large; failure to ring-fence this debt could balloon guarantees to R200 billion. IMF-compliant reforms (e.g., pension tweaks) face union resistance, potentially delaying G20 debt relief advocacy during SA’s 2025 presidency.

Outlook: Prudence or Peril?

With the MTBS landing in the public space, a week before the G20 meeting is to kick-off in the country, rejection would create a most unwanted spectacle that would play out on a global stage, should it be rejected by coalition partners again as happened in February. This places Minister Godongwana in a tricky and precarious position.

The MTBPS could reaffirm SA’s fiscal pivot, unlocking JSE rallies Foreign Direct Investment flows, and rand stability. Yet, in a GNU era, business must lobby for growth enablers amid austerity measures to reign in a grossly bloated and under-performing government.

As Godongwana noted in May: “We must grow out of debt, not tax our way.” Success hinges on bridging divides and creating a pathway to GDP growth, while failure risks a 80% debt-to-GDP by 2028, per IMF, stifling the 2.5%-plus GDP growth needed for job creation. Will Wednesday mark progress or procrastination, or even worse regression.