MTBPS preview: markets will watch for additional expenditure again

For the fiscal year to date, 2025/26, the first five months shows expenditure has dropped, to 41.4% of budget, versus 43.0% of budget this time last year, with data on the sixth month to be published by National Treasury at the end of October. 

A moderate improvement in revenues has occurred, at 38.7% of budget versus 37.1% this time last year. The very narrow commodity rally (in precious metals) has not substantially boosted revenues yet, but a further lift in revenues is expected. 

The outcome for the current financial year to date shows revenue at R742bn for the first five months of 2025/26, versus budgeted revenue for the full year at R1 949bn, and five twelfths of this R813bn, which means the first five months are below budget.

From an expenditure perspective, year to date R957.3bn has been spent out of R2 310.7bn, with five twelfths of this R962.8bn, and so expenditure is over budget for the year so far, given available data for the five of the twelve months.

Currently, on the available data, the fiscal deficit is -R215.2bn, with the budgeted deficit for the 2025/26 year -R361.3bn, and five twelfths of this -R150.5bny. The fiscal deficit is much wider than currently budgeted for to date.

However, there is still one missing month for half year, September, which will be published at the end of next week. But, even with no widening of the deficit from its current -R215.2bn, it will not reach -R180.7bn, half the year’s -R361.3bn budget.

That is, revenue will have to rise substantially, and expenditure fall in September, from August’s levels, in order for South Africa’s provisional financing figures to move towards half of the budgeted deficit by half of 2025/26.

While the government finance figures are not yet encouraging, they do point to a less worsening versus budget compared to last year, when borrowings were increased in order to fund expenditure in a poor revenue year.  

The fiscal trajectory has been one of slippage, but revenue flows are also uneven between months and there is scope for some catch up on the revenue front to prevent the fiscal deficit from exceeding budget.

Last year’s MTBPS saw expenditure projections revised substantially higher, on special adjustments to expenditure not previously budgeted for, including the repayment of Sanral debt, “rollovers (and) defence troop deployment”.

There were also further appropriations to expenditure for the Presidency, DIRCO and the Department of Justice and Constitutional Development in legal costs for South Africa's case in the International Court of Justice. 

And in addition, the “in-year adjustments also contain emergency funds related to the South African National Defence Force troop deployment in the Democratic Republic of the Congo”, with all the additional costs severely widening the deficit.

And also “including an increase in the COVID-19 social relief of distress grant. An amount of R60 million is also added for costs related to the initial activities of South Africa's G20 Presidency in 2024/25.”

These additional unbudgeted costs contributed to the February Budget in 2025’s proposed 2% VAT increase, along with expenditure adjustments for early retirement of civil servants. The GNU did not pass the first two budget proposals.

Financial markets will therefore be watching the proposed debt and deficit figures in this year’s MTBPS very closely, along with any additional allocations for expenditure, with the GNU and the public not finding funding via large tax increases palatable. 

Markets reacted negatively to the (leaked) February and March budget’s this year, with South Africa’s ten-year bond yield rising to 10.97% before dropping to 9.00% after the May budget, lower inflation and a lower inflation target later in the year.

National Treasury and the Reserve Bank have been working towards lowering the inflation target range, from 3-6% y/y, and narrowing it as well, but the official change would come from National Treasury, with the MTBPS an opportunity to do so.