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South Africa's debt will peak this year, ending 17 years of growth, as rising commodity prices eased pressure on public finances and allowed the government to avoid raising taxes.
In his annual budget speech, Finance Minister Enoch Godongwana said the country has reached “a turning point in the management of our public finances” as he estimates government debt will reach 78.9 percent of GDP in the fiscal year ending in March, falling to 77.3 percent in 2026-27.
“For the first time in 17 years, debt will stabilize and will continue to decline in the coming years,” Godongwana said, adding that Africa's largest economy would grow by 1.6 percent this year, up from 1.3 percent in 2025, and to 2 percent by 2028 as growth improves.
This would be a huge change from the country's average growth rate of less than 1 percent over the past decade, boosting investors' hopes that the long-delayed structural reforms The measures implemented by the government of President Cyril Ramaphosa are beginning to take effect.
Windfall profits from commodities – especially record prices of gold and platinum South Africa is a major exporter – this meant Godongwana did not have to raise taxes.
Godongwana's latest budget had no drama like last year's, when smaller coalition parties refused to sign on to a proposal to raise VAT by 0.5 percentage points, which the National Treasury said at the time was needed to plug the R60bn ($3.8bn) fiscal gap. that budget finally passed But the government had to cancel the planned VAT increase.
Economists have previously warned that recent signs of economic recovery are too fragile and weak to fully address the country's deep social problems, including youth unemployment.
South Africa still suffers from the worst unemployment crisis in the world, with one in three people out of work. It provides social grants to about 26 million people, which is about 40 percent of the population.
But striking an optimistic tone, Godongwana cited positive signs in the economy in recent months, including South Africa's removal from the global money-laundering gray list, the country's first sovereign credit rating upgrade in 16 years and falling borrowing costs.
“These are signs of restored credibility, new resilience and a nation finding its feet again,” he said. “The lesson is simple but powerful – steady structural reforms and responsible public finances are the foundation of a prosperous and more inclusive South Africa,” he said.
Reforms in recent years have included opening up the troubled electricity sector to market competition, a management overhaul at troubled state-owned freight and rail company Transnet, and opening up some of the country's largest ports to private operators.
The rand, which had risen 13 per cent against the dollar last year, strengthened modestly after Godongwana started talking about R15.90 to the greenback.
“The budget confirms that the country is on the cusp of a positive pivot as reform efforts begin to bear fruit, macro-fiscal prudence is adhered to and institutional credibility strengthens,” said Nafez Zouak, a sovereign analyst at Aviva Investors. “Despite known structural risks, we think this prepares the country for a potential sovereign credit rating upgrade later this year.”