South Africa Stays on Track to Meet Fiscal Targets Despite Middle East Conflict

According to Pieterse, the February 2026 Budget marked a historic turning point, as government debt stabilised relative to GDP for the first time since before the 2008 global financial crisis.

South Africa remains firmly on course to achieve its fiscal objectives despite growing global uncertainty caused by the recent conflict in the Middle East, National Treasury Director-General Duncan Pieterse has said.

Speaking at the Citi Emerging Markets Macro and Credit Conference on Monday, Pieterse outlined a positive outlook for the country's public finances, highlighting significant improvements in government debt management, fiscal discipline and economic reform efforts.

His remarks come at a time when concerns have intensified globally following escalating tensions in the Middle East, which have raised fears of higher energy prices, inflationary pressures and slower economic growth across many countries.

Despite these challenges, Pieterse said South Africa's fiscal position has strengthened considerably and remains resilient enough to withstand external shocks.

Debt Stabilises for the First Time Since Global Financial Crisis

One of the most significant achievements highlighted by Treasury is the stabilisation of government debt relative to gross domestic product (GDP).

According to Pieterse, the February 2026 Budget marked a historic turning point, as government debt stabilised relative to GDP for the first time since before the 2008 global financial crisis.

For more than a decade, South Africa has battled rising debt levels driven by weak economic growth, increasing government expenditure and financial support for struggling state-owned enterprises.

The stabilisation of debt is seen as a major milestone in restoring confidence in the country's public finances and reducing long-term fiscal risks.

Third Consecutive Primary Budget Surplus Achieved

Treasury also reported that South Africa has now recorded a third consecutive primary budget surplus.

A primary surplus occurs when government revenue exceeds expenditure, excluding debt servicing costs.

Pieterse said this achievement demonstrates government's commitment to fiscal consolidation and confirms its ability to meet key budget targets while simultaneously implementing structural reforms designed to stimulate economic growth.

"The true test of fiscal credibility is to deliver on our fiscal objectives through the cycle, including in times of stress," Pieterse said.

The latest figures show that the primary surplus reached 1.1% of GDP during the 2025/26 financial year, exceeding the Budget estimate of 0.9%.

At the same time, the main budget deficit narrowed to 4.3% of GDP, outperforming the projected deficit of 4.6%.

Credit Rating Agencies Signal Growing Confidence

South Africa's improved fiscal performance has also received recognition from international credit rating agencies.

Pieterse pointed to recent assessments by Moody's and S&P Global Ratings as evidence that global investors are becoming increasingly confident in South Africa's economic outlook.

Moody's recently revised South Africa's outlook from stable to positive, while S&P Global Ratings maintained its positive outlook following the sovereign credit rating upgrade announced in November 2025.

According to Pieterse, both agencies expect South Africa's debt burden to decline steadily over the next three years as fiscal consolidation and structural reforms continue to gain momentum.

He noted that South Africa currently stands out among major economies, being the only G20 nation with a positive outlook from Moody's and one of only two G20 countries enjoying a positive outlook from S&P Global Ratings.

Government Plans Formal Fiscal Rule

To strengthen fiscal discipline further, government plans to introduce a formal fiscal rule during the Medium-Term Budget Policy Statement (MTBPS) scheduled for October 2026.

The fiscal rule is expected to reinforce government commitments regarding debt reduction and maintaining primary budget surpluses.

Such a framework would provide investors with greater certainty regarding government spending and borrowing decisions while enhancing fiscal accountability.

Treasury expects government debt to peak during the 2025/26 financial year before gradually declining over the medium term.

Debt is projected to fall to 76.5% of GDP by the 2028/29 financial year, while the main budget deficit is forecast to narrow further to 3.1%.

Temporary Fuel Levy Relief Introduced

The recent conflict in the Middle East has pushed global oil prices higher, raising concerns about fuel costs and inflation.

In response, government introduced temporary fuel levy relief between April and June 2026.

The relief package is estimated to cost R17.2 billion.

Pieterse stressed that the intervention would not place additional pressure on public finances because it is being funded through stronger-than-expected fiscal performance achieved during the previous financial year.

As a result, Treasury regards the measure as fiscally neutral.

He added that any future relief measures would need to be accommodated within existing departmental budgets rather than through additional borrowing.

Revenue Collection Exceeds Expectations

Treasury also reported encouraging revenue performance at the start of the new financial year.

Tax collections during April exceeded Budget forecasts by R5.9 billion, representing annual growth of 10.1%.

The stronger revenue performance provides government with additional flexibility as it continues pursuing its fiscal consolidation objectives.

Meanwhile, expenditure pressures remain relatively contained.

Pieterse explained that the current public-sector wage agreement remains fixed until the 2027/28 financial year, reducing the risk of unexpected spending increases.

In addition, social grant spending is expected to come in approximately R2 billion below original projections due to improved beneficiary verification processes.

Borrowing Costs Continue to Decline

South Africa's improving fiscal outlook has also translated into lower borrowing costs.

According to Pieterse, domestic government bond yields have fallen by an average of 240 basis points between the 2025 and 2026 Budgets.

International borrowing costs have also improved significantly.

Five-year Eurobond spreads narrowed from 170 basis points before the recent Middle East conflict to approximately 106 basis points currently.

Lower borrowing costs reduce pressure on government finances and create additional room for productive spending and investment.

Eskom's Financial Recovery Gains Momentum

Pieterse highlighted major improvements at state-owned power utility Eskom.

After years of financial difficulties and operational challenges, Eskom is now on track to record its second consecutive profitable year.

The utility reported a profit of R16 billion in 2025 and generated a further R24.3 billion profit during the first half of 2026.

According to Pieterse, Eskom's recovery has been driven by improved operational performance, tariff adjustments and conditions attached to government debt relief measures.

He also noted that South Africa has now gone more than 365 days without experiencing load shedding, marking a significant milestone in the country's energy recovery.

Transnet Shows Early Signs of Improvement

While logistics giant Transnet remains loss-making, Treasury believes the company is showing encouraging signs of recovery.

Freight volumes have increased while financial losses have begun narrowing.

Pieterse said government currently sees no need for an equity injection into Transnet because existing guarantees provide adequate financial support.

Improved logistics performance is considered essential for boosting exports, investment and overall economic growth.

Economic Growth Outlook Improves

Treasury believes South Africa's medium-term growth prospects are strengthening as structural reforms begin delivering results.

Economic growth accelerated during the second half of 2025, with GDP expanding by 1.1% for the year—double the growth rate recorded in 2024.

The February 2026 Budget projects growth reaching 2% by 2028.

Fixed investment has also shown signs of recovery, with two consecutive quarters of growth recorded during 2025 after a prolonged period of contraction.

Agricultural exports increased by 11% during the first quarter of 2026 compared with the same period a year earlier, supported by higher export volumes and stronger prices.

Infrastructure and Energy Reforms Accelerate

Government's reform agenda continues to gather pace across the energy, logistics and infrastructure sectors.

Pieterse noted that the National Energy Regulator of South Africa (NERSA) has registered more than 19 gigawatts of new electricity generation capacity.

An additional 24 gigawatts of projects are seeking grid connections through the National Transmission Company of South Africa over the next six years.

Government is also moving ahead with plans to establish an independent transmission system operator and introduce a wholesale electricity market.

In logistics, private-sector participation is expanding.

The Durban Container Terminal Pier 2 concession became operational in January 2026, while 11 train operating companies have been selected to operate across six major freight corridors.

Infrastructure spending is expected to grow by nearly 10% annually over the medium term, making it the fastest-growing area of government expenditure.

Major investments include R23.1 billion for passenger rail signalling systems, R7.4 billion for operational support and R5.7 billion for rolling stock.

Treasury has also approved R104 billion worth of infrastructure projects through the Budget Facility for Infrastructure and successfully raised R11.8 billion through its first infrastructure bond issued in December 2025.

Municipal Reform Remains a Key Priority

Looking ahead to local government elections scheduled for November, Treasury intends placing greater focus on municipal reform.

A Metro Trading Services Reform programme backed by R54 billion over the medium term has been launched to improve municipal finances and strengthen infrastructure investment.

The initiative aims to address longstanding service delivery challenges while improving financial sustainability across municipalities.