Opinion | Green roots need to grow

In presenting the 2026 national budget to Parliament on February 25, Finance Minister Enoch Godongwana described it as a turning point for South Africa’s public finances, pointing to improved confidence, firmer growth prospects and rising infrastructure investment. For more than a decade, large budget deficits and escalating public debt have dominated fiscal policy. This year, analysts have welcomed signs of stabilisation.

Gross loan debt is projected to have peaked at just under 80% of GDP. For the first time in years, Treasury expects debt-service costs to rise more slowly than spending on health and education, easing pressure on frontline services. The improvement reflects financial shifts that began in mid-2025.

The rand strengthened after turbulence linked to U.S. tariff announcements, while the South African Reserve Bank’s firm stance on inflation and Parliament’s resistance to higher VAT reinforced expectations of macroeconomic discipline. The yield on the 10-year government bond declined from about 11% to near eight percent, significantly lowering the state’s cost of borrowing.

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Treasury now projects debt-service costs will fall from 5,4% of GDP this year to 5,2% by 2028/29, creating limited but important fiscal space. Yet stabilisation is not the same as recovery. Economic growth remains subdued.

The economy is projected to expand by 1,4% in 2025, 1,6% in 2026 and two percent by 2028. These rates are insufficient to make a meaningful dent in unemployment, which remains above 30%, or to lift living standards in a country with persistent inequality. Gross fixed capital formation stands at roughly 14% of GDP, far below the 25% typically associated with sustained expansion in emerging markets.

The budget deficit, while narrowing, is still about four percent of GDP. Treasury links stronger growth to structural reforms under the Presidency’s Operation Vulindlela programme, launched in 2020 to address binding constraints. These reforms include restructuring the electricity sector, modernising Transnet and logistics networks, expanding digital infrastructure and the e-visa system, and strengthening export competitiveness.

The 2026 Budget Review reports uneven progress: electricity reforms are 62% implemented, transport 33%, water 11%, telecommunications 67%, and visa reforms 75%. While these figures indicate movement, the impact on output and investment will take time to materialise.

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