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South Africa’s debt will peak this year, ending 17 years of increases, as a boost from commodity prices eased pressure on public finances and allowed the government to avoid raising taxes.
In his annual budget speech, finance minister Enoch Godongwana said the country had reached a “turning point in the management of our public finances”, as he forecast that government debt would peak in the fiscal year ending in March at 78.9 per cent of GDP before falling to 77.3 per cent in 2026-27.
“For the first time in 17 years, debt will stabilise and it will continue to fall in the coming years,” Godongwana said, as he also projected that Africa’s largest economy would expand by 1.6 per cent this year, up from 1.3 per cent in 2025, with growth improving to 2 per cent by 2028.
This would be a considerable turnaround from the country’s average growth rate of less than 1 per cent over the past decade, bolstering investor hopes that long-delayed structural reforms by President Cyril Ramaphosa’s government are beginning to take effect.
A windfall from commodities — notably record prices in gold and platinum, of which South Africa is a major exporter — meant Godongwana did not have to raise taxes.
Godongwana’s latest budget had none of the drama of last year, when smaller coalition parties refused to sign off on a proposal to raise VAT by 0.5 percentage points, which the National Treasury said at the time was needed to fill a R60bn ($3.8bn) fiscal hole. That budget eventually passed but the government had to scrap the planned VAT increase.
Economists have previously warned that the recent signs of economic improvement are too fragile and weak to fully address the country’s deep social problems, including youth unemployment.
South Africa still suffers from one of the worst unemployment crises in the world, with one in three people out of work. It provides social grants to about 26mn people, roughly 40 per cent of the population.
But striking an optimistic tone, Godongwana cited positive signs in the economy in recent months, including South Africa’s removal from a global money-laundering grey list, the country’s first sovereign credit rating upgrade in 16 years and a fall in borrowing costs.
“These are signals of restored credibility, of renewed resilience, and of a nation regaining its footing,” he said. “The lesson is a simple but powerful one — steady structural reform and responsible public finances are the bedrock of a prosperous and more inclusive South Africa,” he said.
Reforms in recent years have included opening up the crisis-ridden electricity sector to market competition, a management overhaul at Transnet, the troubled state-owned freight and rail company, and opening some of the country’s biggest ports to private operators.
The rand, which gained 13 per cent against the dollar last year, firmed marginally after Godongwana began speaking to about R15.90 to the greenback.
The budget confirmed “that the country is on the cusp of a positive pivot as reform efforts start to bear fruit, macro-fiscal prudence is adhered to, and institutional credibility is strengthened”, said Nafez Zouk, a sovereign analyst at Aviva Investors. “Notwithstanding the known structural risks, we think this sets the country up for a possible sovereign credit rating upgrade later this year.”
