MTBPS Review: Ticking the right boxes

The MTBPS included a couple of strong announcements, including – chiefly – a reduction in the inflation target to 3%; strengthening policy coordination with the Reserve Bank; adhering to a path of fiscal consolidation despite marking down the 2025 GDP growth forecast to 1.2% but supported by higher tax collections; cutting SAGB auctions by R750m per week; and utilising an additional R31bn in GFECRA proceeds.

This underscores the GNU’s commitment to restoring the country’s fiscal health, as well as improving the quality and efficiency of spending through both ongoing spending reviews and the professionalisation of the public sector.

Involving the private sector through private-public partnerships (PPPs) in rebuilding South Africa’s infrastructure was a feature of the statement, with important timelines set out in 2026 for the Municipal PPP framework, RFPs for Transnet corridors, municipal grant reforms, and a credit guarantee vehicle for de-risking of private investment in critical infrastructure, such as transmission lines. However, risks to the fiscal projections are to the downside as an acceleration in growth remains critical.

The macroeconomic policy framework has been strengthened by the decision to lower the inflation target to 3%, with a 1ppt tolerance band, implemented over the next two years. The Minister of Finance backed the Reserve Bank’s decision to target the lower end of the target band and align South Africa’s inflation target to its main trading partners and emerging market peers, and signalling greater policy coordination between the SARB and National Treasury and support to lower the inflation expectations.

Our view is that this opens the door for the MPC to cut the repo rate by 25bps at next week’s MPC meeting, as support from the Minister of Finance provides more space to the SARB Governor, with forward-looking real interest rates above 3.0% even with inflation expected to rise to ~3.8% by year-end. While inflation expectations are a key input to the interest rate decision, the repricing of SAGB yields on a lower inflation and currency risk premium is an important consideration in the absence of the BER’s Q4 inflation expectations survey, published in December. National Treasury revealed its repo rate forecast is for no more rate cuts in 2025, 25bps in 2026, and 50bps in 2027. This is in contrast to the SARB’s implied repo rate forecast of 25bps in Q4 25, ~50bps in 2026, and 25bps in 2027, and ICIB’s forecast of 25bps in Q4 25 and 25bps in 2026.

The growth implications of a lower inflation target will have “multi-stage implications for public finances”, as per the MTBPS document. National Treasury notes that nominal GDP will be impacted in the short-to-medium term, leading to lower revenue projections relative to the May 2025 baseline forecast. There will be a partial offset from lower debt-servicing costs, arising from the decline in interest rates across the maturity spectrum. The longer-term effect is higher real GDP growth, driven by higher consumption spending as real disposable income climbs, and fixed investment (although this has been lowered compared to the May 2025 forecast).

Real GDP is projected to grow by 1.2% (previously 1.4%) in 2025 and remains unchanged at 1.5% and 1.8% in 2026 and 2027, respectively, before rising to 2.0% in 2028. This is possible if there is an acceleration in private sector fixed investment. Nominal GDP growth is projected to decline by R261bn relative to the May 2025 baseline forecast over the MTEF period. This can be ascribed to the revision in the CPI inflation forecast to be more aligned with the SARB’s forecast of 3.3% in 2025; 3.7% (previously 4.4%) in 2026; 3.3% (4.4%) in 2027; and 3.2% (4.5%) in 2028. Nominal GDP growth is below 6% over the MTEF period at 4.2% (previously 5.8%), 5.4% (6.1%), 5.4% (6.1%) and 5.3% from 2025 to 2028, respectively.

A key focus has been on the gross debt trajectory over the MTEF period, due to persistently upward revisions, necessitating a drawdown in GFECRA and bracket creep for individuals.

The MTBPS forecast did not factor in tax receipts expected from higher commodity prices, which means there is upside risk to the February 2026 Budget Review forecast. While debt remains elevated at ~78% of GDP, the projection over the MTEF period has been raised marginally and can mostly be ascribed to slower nominal GDP growth. The MTBPS sees the debt/GDP ratio stabilise at 77.9% of GDP (P: 77.4%) and 77% by F28/29, which is about 0.5% higher than previously forecast. The primary balance surplus, which is the de facto fiscal anchor presently, will widen to 2.5% over the same period. The main budget deficit is projected to moderate from 4.5% of GDP to 2.7% of GDP.

There has been an improvement in debt service cost projections, which declines from 21.5% as a share of gross revenue to 20.1%. FY25/26 projection: The effect of lower revenue receipts in the near term will be masked by better revenue receipts of R19.7bn in the first half of FY25/26. This excludes an anticipated overrun of a further ~R30bn from mining taxes. Of this, net VAT receipts are projected to rise by an additional R11.3bn due to lower VAT refunds, and higher CIT collections arising from higher dividend tax (R4.2bn) and companies tax (R4.6bn). Main expenditure is revised R11.0bn higher, with non-interest spending rising by R15.7bn, but countered by a decline in debt-servicing costs of R4.8bn.

The increase in spending can be ascribed to disaster relief, funding for the Madlanga Commission of Inquiry, spending for the national dialogue, StatsSA and the Office of the Chief Justice, and provisional allocations for health and education, including early childhood development. The contingency reserves are revised from R5bn to R13.5bn, to provide for various infrastructure projects, such as freight rail rehabilitation, and for the 2026 municipal elections.

Over the MTEF period, lower nominal GDP growth translates into a reduction in the baseline revenue projection of R4.4bn and R21.3bn over the next two fiscal years. However, a tax increase of R20bn is pencilled into FY26/27, subject to SARS’s success in collecting an additional R20-35bn. On the expenditure side, technical adjustments have been made to noninterest spending to account for lower, nominal increases in social and conditional grants of R6.1bn and R14.2bn over the next two years. The annual public sector wage increase has a threshold of 4.0% for the next two years. The composition of spending remains biased towards a faster increase for payments for capital assets, which increases by 7.3% p.a. over the MTEF period, compared to transfers and subsidies increase of 2.5% p.a., current payments of 3.6%, and compensation of employees at 4.1% p.a. Importantly, the TARS reform to make budgeting more efficient and effective will include phasing out or scaling down underperforming projects and programmes.

The MTBPS maintains its commitment to shifting expenditure toward capital investment and strengthening public-private collaboration to raise fixed investment in infrastructure. This is a key feature in the MTBPS. Progress in advancing PPPs continues across key sectors, with several notable developments that are gaining traction:

Regulatory Reforms: PPP regulations are being improved to streamline approval processes, particularly for smaller projects.

Unsolicited Bids: In October 2025, new guidelines on unsolicited bids were published to encourage private sector participation and innovation, including provisions for recoverable development fees.

FY25/26: The main budget deficit declined from R361.5bn to R353.0bn, which is less than ICIB’s forecast due to the different revenue projections. This, however, could potentially have a material impact on the closing balance for FY25/26. With its current assumptions, National Treasury projects a redemption of the R010 of R100.2bn (with a switch auction scheduled for Wednesday, 12 November). The large prefunding undertaken by ramping up FRN issuance has raised cash by nearly R50bn ahead of the funding target by October 2025. Contrary to ICIB’s expectations of building up cash balances due to larger R010 redemptions, National Treasury will draw down on cash balances of R82.7bn and cut weekly SAGB auction levels by R750m. This raises the cash raised from SAGBs, ILBs and FRNs from R345.3bn to R352.2bn, compared to ICIB’s projection of ~R390bn. This may translate into smaller FRN allocations for the remainder of the fiscal year, from an average of R9.4bn per month from April to November to ~R5.0bn. Net T-bill issuance has been raised from R37.2bn to R39.1bn.

FY26/27: The borrowing requirement is projected at R377.8bn (P: R368.0bn). However, the mix of funding shows a marked decline in cash raised from FRNs, ILBs and SAGBs of R256.5bn (P: R319.5bn) and a smaller drawdown in cash balances of R15.9bn due to an additional drawdown of R31bn (total R56bn in total). The R187 redemption is currently set at R100.2bn. Switch auctions are likely to reduce the redemption amount to ~R50bn and raise the cash balance, in addition to a higher closing year cash balance in F25/26. Our calculations show that if the new SAGB auction level of R3.0bn and current ILBs of R1.0bn are maintained, FRN issuance could decline to R48bn (or R4.0bn on average per month), or a reference for more FRNs could allow for a cut in SAGB and/or ILB levels. Added to this may be the inclusion of infrastructure bonds linked to the BFI windows, ss well as Sukuk bonds. However, the borrowing requirement increases in F28/29 with large redemptions of R286.9bn, which will involve ongoing switch auctions to reduce maturities. .

Foreign currency financing: National Treasury stated that $2.6bn of the projected $5.3bn has been raised, with the balance of $2.7bn to be raised before the end of FY25/26. Over the medium term, the financing requirement is $14.3bn, with drawdowns on its foreign exchange balances.