A notable and forward-thinking step outlined in the MTBPS is the decision to reduce South Africa’s inflation target to 3% with a 1 percent-point tolerance band. This significant change is the first adjustment of the target in 25 years. In an environment where the cost-of-living weighs heavily on ordinary citizens, this move is both forward-thinking and courageous. Lower inflation will ease pressure on households, make borrowing more affordable for businesses and the government, and, ultimately, lay the groundwork for a more sustainable economy. 

The overall picture is not without its challenges. The MTBPS emphasises the government's dedication to fostering economic sustainability, even amid a low-growth environment. Over the past year, domestic economic growth has been challenged by increased global uncertainty, market volatility, logistical constraints, and reduced levels of business and consumer confidence.

The National Treasury has adjusted its economic growth forecast to 1.2%, down from the earlier projection of 1.4% stated in the 2025 Budget. This adjustment reflects the slower economic performance observed in the first half of the year. However, looking ahead, real GDP growth is expected to gradually increase to 1.8% annually between 2026 and 2028. This anticipated growth over the next three years is likely to be bolstered by a resurgence in investments as new infrastructure allocations are implemented and reforms take shape.

Despite a challenging economic environment, the Finance Minister emphasised National Treasury's steadfast commitment to fiscal consolidation. The consolidated budget deficit is projected to decrease from 4.7% of GDP in 2025/26 to 2.9% of GDP by 2028/29. Importantly, government debt is expected to stabilise at 77.9% of GDP, marking a significant milestone as it is the first time since the 2008 financial crisis that public debt will not increase as a proportion of GDP. Additionally, debt-service costs are anticipated to grow by only 3.8% annually over the medium term, a notable improvement from the 7.4% growth predicted during the 2025 Budget. Government borrowing rates have been declining throughout 2025, contributing to a reduction in debt-service costs and further strengthening the fiscal outlook.

The latest projections for the 2025/26 budget indicate a positive adjustment in gross tax revenue, which has been revised upwards by R19.7 billion. This encouraging outlook is primarily driven by robust household spending and stronger enforcement to stop fraudulent value-added tax (VAT) refunds, leading to increased collections in VAT.  As originally indicated in the 2025 Budget, an additional R4 billion was allocated to the South African Revenue Service, which, according to the minister will strengthen debt collection by between R20 – 50 billion per year. Focus will include combatting illicit trade and claims. Following an assessment of the revenue services’ performance, the finance ministry will determine if the R20 billion in additional tax increases proposed for the 2026 Budget can be withdrawn.   

Furthermore, corporate and dividend tax revenues have seen strong contributions from the thriving trade, electricity, and finance sectors. However, while the revenue performance for 2025/26 surpasses initial expectations, it is important to note that gross revenues are still anticipated to be approximately R15.7 billion below the estimates set in the 2025 Budget over the next two years. This presents an opportunity for continued growth, alongside strategic planning to align future revenues with budgetary goals.

Recent adjustments to expectations for corporate and personal income tax collections reflect a more cautious outlook on profitability and wage growth. However, the positive trends of lower inflation, the delayed impact of recent interest rate cuts, and enhanced consumer sentiment are likely to improve household consumption. This, in turn, is anticipated to lead to stronger domestic VAT collections that could surpass the estimates set in the 2025 Budget. To continue this upward trajectory in tax revenues, it will be essential to promote sustainable economic growth and further advancements in tax compliance and administration.

The consolidated spending adjustments reflect a proactive approach to addressing urgent needs. A proposed additional expenditure of R15.8 billion for the current year will facilitate funding for key priorities. Over the next three years, National Treasury anticipates a 61% commitment of consolidated non-interest spending to supporting a range of government-provided services and benefits aimed at alleviating the cost of living for citizens.

Fortunately, the 2025 Medium-Term Expenditure Framework introduced the Targeted and Responsible Savings initiative, which demonstrates the government's commitment to enhancing fiscal sustainability and service delivery. This initiative will focus on identifying low-priority or underperforming programs for potential reductions, mergers, or closures, ensuring that savings are effectively redirected to strengthen services within sectors or to support broader government priorities. 

The amendments to public-private partnerships (PPP) regulations took effect on 1 June 2025, unlocking clearer processes – especially for projects valued at under R2 billion that now require fewer approvals. The minister noted the unsolicited bid guideline provides a clear structured pathway for the private sector to submit project ideas to government. However, he also announced that municipal PPP regulations will be amended by 2026. 

Regarding infrastructure, the Finance Minister was clear in praising Operation Vulindlela (now in Phase 2) as essential to South Africa’s journey to a stable energy supply – avoiding an energy crisis. Additionally, the minister highlighted the planned launch of a new Infrastructure Bond, targeting to raise at least R15 billion, towards the Budget Facility for Infrastructure. The Infrastructure Bond along with the planned R2 billion to capitalise the Credit Guarantee Vehicle, as well as the operationalisation of the new Infrastructure Finance and Implementation Support Agency in 2026 will be key to propelling the economy forward.

Meanwhile, the Department of Transport's private-sector participation unit is taking proactive steps to enhance the passenger transport and logistics sector, drawing valuable lessons from the Renewable Energy IPP project. In response to the significant interest from the freight logistics sector, the unit is set to issue the first rail corridor request for proposals by December 2025, with additional proposals to follow in early 2026.

In addressing the issue of non-revenue water, the office is collaborating with the Tshwane and eThekwini municipalities to develop projects aimed at establishing performance-based contracts with suppliers. These initiatives will focus on reducing water leaks and improving revenue, with plans to extend support to seven other municipalities soon.

Furthermore, the Green Climate Fund has allocated approximately R4.2 billion (US$235 million) to the Development Bank of Southern Africa to support municipalities in project preparation and implementation efforts related to water reuse.

Additionally, the National Treasury, in partnership with the African Development Bank (AFDB) and donor organisations, is launching a pilot Municipal Utility Reform Programme under a results-based concessional loan of up to R6.8 billion (US$400 million) from the AFDB. This initiative aims to stabilise and professionalise essential municipal utilities for water and electricity, focusing on reducing losses, introducing cost-reflective tariffs with safeguards for low-income households and enhancing governance and reporting.

South Africa's recent exit from the FATF grey list marks an important milestone following a dedicated 32-month effort to implement reforms. This achievement reflects a comprehensive approach from the government and various institutions working collaboratively to enhance the integrity of South Africa’s financial system. The delisting not only signifies progress but is also anticipated to bolster investor confidence, paving the way for greater economic stability and growth in South Africa¹.

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¹ Media release: South Africa’s exit from the FATF grey list | South African Revenue Service