South Africa’s medium-term budget wins fiscal credibility but growth fears persist as 2026 GDP forecast slashed to 1.2%

Finance Minister Enoch Godongwana presented the Medium Term Budget Policy Statement (MTBPS) in Parliament on Wednesday, offering a picture of improved fiscal discipline but a growth outlook that has darkened since February. The government revised its 2026 economic growth forecast down to 1.2% from the 1.6% projected in the main budget, a cut that immediately drew sharp reactions from business leaders, opposition parties and labour unions.

Business groups broadly welcomed the Treasury’s commitment to fiscal consolidation. Business Leadership South Africa (BLSA) said the proposed fiscal anchor could improve policy certainty and lower borrowing costs. “The core focus from here is to ensure that the stability translates into delivery. Faster economic growth is the best way to address South Africa’s severe unemployment crisis,” BLSA CEO Busisiwe Mavuso said. “This is a long-term process, which is why every effort to accelerate delivery matters, especially on structural reforms and infrastructure.”

Standard Bank group head of South African macroeconomic research Elna Moolman noted that the Treasury was shifting its focus from stabilising government debt to driving growth, using stronger-than-expected revenue collections to fund infrastructure investment. She cautioned that reforms aimed at improving municipal finances would take time.

FNB’s medium-term budget review said the government had made progress in stabilising its finances but now needed to convert that into stronger growth. “Critically, the [medium-term budget] passes the fiscal credibility test, but the ultimate test will now be whether the government can convert improved fiscal stability into higher potential growth,” the bank said. The government forecasts growth of 2% by 2029.

The mining sector warned that fiscal gains would count for little unless reforms lower operating costs and unlock investment. Minerals Council South Africa said reliable electricity, efficient rail and port infrastructure, water security and incentives for mineral exploration were critical. “South Africa cannot sustainably strengthen its public finances without stronger economic growth, and stronger growth requires faster implementation of reforms in electricity, rail, ports and water,” the council said.

PSG Financial Services chief economist Johann Els said the budget was “market friendly and ratings friendly”, with declining deficits and debt ratios supporting investor confidence and the prospect of credit rating upgrades. However, he added that the improved fiscal outlook did not remove underlying risks, particularly debt-service costs and the slow pace of growth.

Mark Phillips, head of portfolio management and analytics at PPS Investments, said the improvement in public finances was encouraging, but weak growth, high debt-service costs and slow debt reduction remained concerns. “Fiscal stability is an important achievement. Its lasting value will be measured by whether it creates the conditions for a stronger economy and a more sustainable debt burden,” Phillips said.

Opposition parties were far less sanguine. The Democratic Alliance (DA) said bolder reforms were essential to grow the economy to at least 3.5%. DA MP Kingsley Wakelin said the current growth level “means very little for economic growth and job creation”. “The 2026 MTBPS cuts this year’s growth forecast from 1.6% to 1.2%. This is not enough to move the needle on unemployment. Bold and far-reaching reforms beyond the Treasury are now essential,” Wakelin said.

The uMkhonto weSizwe Party (MKP) described the budget as “rhetorical and a waste of time”. MKP MP Thulani Gamede accused the minister of using the budget to campaign for the Government of National Unity, saying the timing of a fuel levy reduction – set to take effect on 4 November, voting day for local government elections – was politically motivated. “They don’t care about our South African people; they don’t care about the livelihood of our people,” Gamede said.

The Economic Freedom Fighters (EFF) echoed that charge. EFF MP Sinawo Thambo said the fuel levy reduction was being used to boost the African National Congress’s electoral chances. “He’s using it to ensure that he enhances his political party’s chances at the polls on the 4th of November,” Thambo said. “So they’re utilising the power they have as the state to enhance their electoral chances at the polls.”

The United African Transformation (UAT) criticised the budget for failing to provide a comprehensive strategy to lower food prices. UAT leader Dr Wonderboy Mahlatsi said temporary fuel levy relief might reduce transport costs in the short term, “but there is no comprehensive strategy to lower food prices, strengthen local food production, or expand land-based economic opportunities for disadvantaged communities”.

Labour and civil society also voiced concerns. The Congress of South African Trade Unions (COSATU) said the MTBPS needed to inspire hope amid stagnant growth, high unemployment and service delivery failures. COSATU Parliamentary Coordinator Matthew Parks called for investment in public services, a plan to stabilise local government, and more funding for state-owned enterprises to reduce the price of electricity and transport. “We need to expand opportunities for employment for millions of people who are unemployed and just can’t find work by expanding public employment programmes,” Parks said, adding that the Social Relief of Distress grant should be adjusted for inflation.

In the Eastern Cape, where the unemployment rate exceeds 47% and youth unemployment tops 50%, residents hoped the budget would stimulate growth and create jobs. South African Youth Council Provincial Executive Member Zikhona Matyila called for funding and mentorship for young entrepreneurs, alongside investment in basic services such as water, electricity and roads. “If water, electricity and roads are being serviced, then it means more factories are open, and young people can get jobs from there,” she said.

Standard Bank’s head of business banking coverage Umesh Madhav said the budget offered opportunities for SMEs through infrastructure investment and greater private-sector participation. “Infrastructure investment can create opportunities for SMEs across sectors, from logistics and manufacturing to technology and business services,” Madhav said.

The overall message from Wednesday’s MTBPS was one of fiscal progress – lower deficits, a declining debt ratio and a credible anchor – but the growth forecast of 1.2% underscored the gap between financial stability and the kind of expansion needed to dent unemployment, which remains above 30% nationally. As FNB put it, the ultimate test will be whether the government can convert improved fiscal stability into higher potential growth.