Budget 2026 seen marking fiscal turning point as deficit narrows and borrowing needs fall

Tatonga Rusike, Sub-Saharan Africa analyst at Bank of America (BofA), expects the finance minister Enoch Godongwana to avoid significant tax hikes when the Budget is tabled next week, arguing that improved revenue collection and tighter spending controls have reduced the urgency for aggressive tax measures. South Africa’s2026 Budgetis expected to reinforce signs of fiscal stabilisation, with analysts forecasting continued deficit reduction, easing funding pressures, and no majortax increases. According to Tatonga Rusike, Sub-Saharan Africa analyst at Bank of America (BofA), the upcoming budget could represent a meaningful turning point for the country’spublic financesafter years of persistent strain.

Rusike expects the finance ministerEnoch Godongwanato avoid significant tax hikes when the Budget is tabled next week, arguing that improved revenue collection and tighter spending controls have reduced the urgency for aggressive tax measures. “The main budget deficit is likely to improve to around -3.8% of GDP from roughly -4.1% in FY25,” Rusike said, citing favourable tax outcomes and expenditure discipline. TheNational Treasuryestimates the main budget deficit at approximately -4.1% of GDP, an improvement on the government’s baseline of -4.5%.

The anticipated deficit improvement comes despite ongoing fiscal risks that policymakers will need to navigate carefully. Key pressure points include higher allocations for water infrastructure, the long-term implications of making the Social Relief of Distress (SRD) grant permanent, and the ever-present challenge of State-Owned Enterprise (SOE) support. A central theme in thebudget outlookis declining gross financing needs.

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Rusike projects that funding requirements could fall by more than R100 billion, largely driven by the conclusion of extraordinary debt-relief measures for Eskom, larger drawdowns from the Gold and Foreign Exchange Contingency Reserve Account (GFECRA), and the overall narrowing of the deficit. This shift could have tangible effects on the domestic bond market.

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