South Africa's fiscal position has reached a turning point, with government debt relative to GDP stagnating for the first time since the 2008 global financial crisis.
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Despite economic uncertainty heightened by the recent conflict in the Middle East, National Treasury Director General Duncan Pieterse says the country is on track to meet its fiscal targets.
Speaking at the Citi Emerging Markets Macro and Credit Conference, Pieterse highlighted the third consecutive primary budget surplus as evidence that fiscal consolidation efforts and structural reforms are continuing to gain momentum.
“The true test of fiscal credibility is meeting our fiscal targets throughout the cycle, including during times of stress,” Peterson said.
His comments come three days after Finance Minister Enoch Godongwana presented the national budget following an increase in conflict in the Middle East, which has sparked concerns about rising energy prices and their impact on South Africa's economy and public finances.
Peterson said recent assessments from the major credit-rating agencies had strengthened confidence in South Africa's fiscal trajectory.
Moody's recently revised South Africa's outlook to positive, while S&P Global Ratings reaffirmed its positive outlook after upgrading the country's sovereign rating to November 2025.
debt burden decreases
According to Pieterse, both agencies expect South Africa's debt burden to reduce over the next three years, while structural reforms will continue to support economic growth.
He said South Africa is currently the only G20 country with a positive outlook from Moody's and one of only two G20 countries with a positive outlook from S&P.
The Treasury reported stronger than expected financial results for the 2025/26 financial year. The primary surplus reached 1.1% of GDP, higher than the budget estimate of 0.9%, while the main budget deficit narrowed to 4.3% of GDP, compared to an estimated 4.6%.
Government debt is expected to decline in the medium term, while the core budget deficit is projected to fall to 3.1% by 2029.
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fiscal pressure eased
Peterson said the government will introduce a formal fiscal rule during the medium-term budget policy statement in October to reinforce its debt reduction and priority surplus objectives.
In response to rising fuel prices linked to the Middle East conflict, the government introduced temporary fuel-levy relief from April to June, at a cost of R17.2bn.
Pieterse said the measure would be funded from the fiscal outperformance recorded in the previous fiscal year and would therefore be fiscally neutral.
He said any additional relief measures would be accommodated in the existing departmental budget.
The Treasury also reported continued revenue strength at the start of the new financial year. Tax collections in April exceeded budget forecasts by R5.9 billion, representing an annual increase of 10.1%.
public finances improve
Peterson said government spending remained largely insulated from inflationary pressures, with public sector pay negotiations set until the 2027/28 financial year.
Social-grant spending is also expected to be about R2bn lower than anticipated due to improvements in beneficiary verification processes.
He said debt dynamics have improved significantly, with government debt expected to peak in 2025/26 before falling to 76.5% of GDP by 2028/29.
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South Africa's borrowing costs have also declined. Pieterse said domestic government bond yields have fallen by an average of 240 basis points between budgets 2025 and 2026, while spreads on five-year Eurobonds have fallen from 170 basis points before the Middle East conflict to 106 basis points currently.
On state-owned enterprises, Pieterse said Eskom is on track to record profitability for the second consecutive year after recording profits of R16bn in 2025 and R24.3bn in the first half of 2026.
He attributed the turnaround to conditions related to operational improvements, higher tariffs and government debt relief.
South Africa has gone more than 365 days without load shedding, he said.
Transnet has been loss-making, but is showing signs of improvement, with freight volumes increasing and losses reducing. Pieterse said no equity injection will be required for the logistics company as existing guarantees adequately cover its financing needs.
Turning to the broader economy, Pieterse said South Africa's medium-term growth outlook has improved as structural reforms have gained momentum.
Economic growth accelerated during the second half of 2025, with GDP growing by 1.1% for the year, double the growth rate recorded in 2024. The February budget projected growth to rise to 2% by 2028.
Fixed investment has also begun to recover, with two consecutive quarters of growth recorded through 2025 after an extended period of contraction.
Agricultural exports increased by 11% in the first quarter of 2026 compared to the same period a year earlier, supported by higher export volumes and better prices.
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Pieterse acknowledged that the Middle East conflict has raised concerns about fertilizer supplies and prices, but said South Africa was unlikely to face a shortage as it could diversify import sources.
He highlighted progress in energy reform, noting that South Africa's National Energy Regulator (Nersa) has registered more than 19 gigawatts of new generation capacity.
South Africa's National Transmission Company has an additional 24 gigawatts of projects seeking grid connection over the next six years.
The government is also pursuing plans to establish an independent transmission system operator and implement a wholesale electricity market.
Peterson said that private sector participation is increasing in the logistics sector.
The 25-year concession for Durban Container Terminal Pier 2 became operational in January, while 11 train-operating companies have been selected to operate 41 routes across six freight corridors.
He said government infrastructure spending will grow by about 10% annually in the medium term, making it the fastest growing area of expenditure.
Major investments are planned for passenger rail, including R23.1bn for signaling systems, R7.4bn for operational support and R5.7bn for rolling stock.
Spending on infrastructure accelerates
Treasury has also approved R104bn in infrastructure projects through the Budget Facility for Infrastructure and raised R11.8bn through its first infrastructure bond issued in December 2025.
Peterson said municipal reform will be another major focus area ahead of local government elections in November. The Treasury has launched a Metro Trading Services Reform Programme, supported by R54bn over the medium term, to improve municipal finances and infrastructure investment.
Peterson said the government is committed to reducing debt and strengthening economic growth despite global uncertainty.
“We are not yet where we want to be and there is further work to do, especially in the current global environment. But we are on our way to getting there,” he said.