Listen: Budget 2026 | What's at stake?
South Africa’s 2026 Budget arrives at a pivotal moment. Debt is hovering near 78% of GDP. Growth is forecast at just 1.5%. Debt-servicing costs absorb around 5% of GDP. And yet, bond yields have fallen, sentiment has improved and S&P maintains a positive outlook. Is this genuine fiscal stabilisation or simply a window of opportunity? Listen to Investec experts Chief Economist Annabel Bishop and Treasury Economist Tertia Jacobs unpack the upcoming budget.
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The 2026 SONA was a strong statement on the turning point in South Africa for an improved future in many areas, highlighting “(w)e are leaving behind an era of decline and turning towards an era of prosperity and growth.
“Our economy is growing again, and this growth is gathering pace, (w)e have done much to overcome the effects of state capture, the COVID-19 pandemic, the public unrest of 2021 and the devastating floods of the following year”.
The address noted SA’s removal from the greylist by FATF, the upgrade by S&P to BB, a step closer to the first (BBB-) rung of investment grade, the stronger USDZAR, lower inflation, interest rates and bond yields, and strength on SA’s stock exchange.
Besides these largely financial market developments, the address added on the real economy, that “(t)he work we have done to rebuild key institutions from state capture is showing results”, accelerating reform through Operation Vulindlela (OV II).
A virtuous cycle, on an expansion in potential economic growth following heavy infrastructure build, is expected to lift growth over the medium-term, which we expect to 3.5% y/y by 2030, following implementation of current and future OVII reforms.
As expected, the SONA focused on a large number of successes already achieved, from increasing rail traffic for freight and passengers, bringing an “end to load shedding”, improving port performance and creating 2.5million job opportunities.
The SONA showcases government’s investment “across our country in roads, bridges, rail lines, ports, dams, wind and solar farms”, and that “as the economy grows, the rate of unemployment is starting to decline”.
The SDR grant has been made permanent, and funding will be elaborated on in the budget on the 25th of this month for all the areas above, along with updates on tax collection and likely other improvements at SARS.
The budget will also update government’s economic growth outlook, although lower inflation does suppress nominal economic growth and widen fiscal ratios, but higher revenue from the precious metal rally windfall is expected to provide some counter.
The decline in local government has been seen in many infrastructure deficits, and across state bureaucracy itself in any areas with weak productivity, which has negatively affected economic growth and added to load reduction of electricity.
Government noted in the Sona “(w)e will work in each province to address transformer overloading, illegal connections and equipment failure with the objective of eradicating load reduction (insufficient transmission of electricity) by next year.”
But added specifically on government, “(w)e are now taking collective action. Learning from our experience of the past 30 years, we will in the coming months finalise a revised White Paper on Local Government”.
Most recently, “the Auditor-General said local government is characterised by insufficient accountability, failing service delivery, poor financial management and governance, weak institutional capability and widespread instability”.
“(A)rresting the decline of local government will require our collective action. The current system is too complex and fragmented, expecting even small and weak municipalities to take on many responsibilities.”
“While these fundamental reforms are underway, we will continue to implement targeted support to improve the delivery of basic services through the Presidential Working Groups on eThekwini and Johannesburg”.
Noting progress stabilising eThekwini with investor confidence returning, “there is much more that needs to be done in Johannesburg to deal with collapsing infrastructure, financial mismanagement and electricity and water interruptions.”
“In addition to crime, water is now the single most important issue for many people in South Africa, from large cities like Johannesburg to smaller towns like Knysna and rural areas like Giyani”, a key part of the Operation Vulindlela reforms.
“There is no silver bullet to address this challenge, which has its roots in systemic failures and many years of neglecting infrastructure. We are building new dams and upgrading existing infrastructure” but the repair is likely to be lengthy still.
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