South Africa unveils new fiscal anchor
South African bonds rallied as the government cut weekly issuance and Finance Minister Enoch Godongwana unveiled new rules to ensure fiscal sustainability as debt peaked.
Godongwana confirmed debt as a percentage of gross domestic product topped out at 78.4% in 2025-26, a slightly lower level than anticipated in February’s budget, and is seen declining in the years ahead.
“South Africa has emerged from the fiscal wilderness,” he said in the introduction to the medium-term budget policy statement that he presented in Cape Town on Wednesday.
“Government is meeting its fiscal targets and restoring the public finances to good health.”
The yield on South Africa’s 10-year government bonds fell 12 basis points to 8.84%, the lowest in more than a month, while the rand reversed an earlier decline to trade 0.1% stronger at 16.37 per dollar by 2:45 p.m. in Johannesburg.
“Treasury has cut weekly issuance by far more than the market expected, thanks to strong revenues and a change in the funding mix, and it has also included bond buybacks,” Adam Furlan, a portfolio manager at Ninety One SA, said.
“All in all, this is a good, bond-friendly budget. It confirms that debt-to-GDP has peaked and will fall gradually, and rating agencies should receive it well.”
The consolidated budget deficit is seen narrowing to 3.9% in the year through March from 4% previously forecast.
Treasury also projected the primary budget surplus, or revenue minus non-interest spending, growing for a fourth consecutive year to 1.7% of GDP from 1% in 2025-26.
To safeguard these gains, the government released draft fiscal anchor legislation for public comment, expected to be tabled in parliament next year, Godongwana said in his speech to lawmakers.
It foresees a principles-based fiscal rule focused on sustainability, with each new administration required to outline targets that are subject to oversight by parliament.
“The fiscal anchor forms part of the most extensive reconfiguration of the public finance system since 1999, in line with broader efforts to strengthen state capability,” the National Treasury said in budget documents.
A strong performance
The revamp could boost market sentiment. South Africa’s bonds have outperformed peers in recent months.
“Markets will be encouraged to see South Africa with a stronger balance sheet and a firm grip on debt,” said Karim Noujaim, Founder and Managing Director of Skykapital.
“The country’s investment case is stronger than it has been for some time.”
Treasury expects to collect R17.1 billion more in taxes than anticipated in its February budget, helped by stronger mining receipts.
Godongwana’s budget marks significant progress since he took over as finance minister in 2021, with the country’s finances in a perilous state following the pandemic and years of mismanagement during former President Jacob Zuma’s scandal-marred leadership.
The minister was quick to point out that the improved outlook was achieved despite economic headwinds, including surging energy prices due to the Iran war.
The Treasury revised its 2026 growth forecast to 1.2%, down from a projected 1.6% estimate in February.
Godongwana announced temporary relief for motorists and commuters, reducing the fuel levy by 3 rand per litre for diesel and 1.50 rand for gasoline from 4 November to 1 December.
Future interventions would have to remain fiscally neutral to prioritise fiscal targets over relief, said Duncan Pieterse, director-general at the Treasury.
The government previously allocated more than R17 billion for similar relief.
South Africa increased its borrowing requirement in the current fiscal year by R54.3 billion compared with the February projection, mainly to finance a domestic buyback program designed to smooth out redemptions.
The National Treasury expects total borrowing to reach R443.2 billion in 2026-27, compared to R 380 billion projected in February.
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