There have been both positive and negative comments on Thursday after the minister of finance delivered the Medium-Term Budget Policy Statement (MTBPS). However, while there was good news for the long-term financial health of the country, citizens were left in the lurch with nothing to show in the short term.
The minister faces a daunting basket of challenges, such as a staggering R75 billion hole in the national budget and unsurprisingly took a cautious and conservative fiscal stance, raising the need for revising economic growth and inflation forecasts, saying that the 2026/2027 Budget will include new revenue raising and expenditure cutting measures to address the shortfall created by 2025’s low economic growth.
Delicate balance between spending and revenue
Neil Roets, CEO of Debt Rescue, believes the minister attempted to strike a delicate balance between expenditure cuts, spending and revenue-raising measures, but that the trade-offs he proposed leave hardworking South Africans in the lurch.
“The minister opted to prioritise debt containment, inflation reduction and structural reform over immediate socio-economic relief, which means there will be no financial relief for citizens in the short term.
“Not adjusting tax brackets for inflation is not a viable solution, as that ‘bracket creep’ breaks the backs of taxpayers. Government must consider more aggressive support strategies for consumers facing financial distress. Households are stretched to the limit by high prices, stagnant wages and mounting debt repayments and people are desperate for relief.”
South Africa’s debt trap
According to economists, the country is on the edge of a financial crisis. South Africa’s debt-to-GDP ratio continued to increase since May 2025, reaching an estimated 77% to 77.4% in the 2025 fiscal year, with official projections indicating a peak in the 2025/26 fiscal year before a potential gradual decline. This upward trend is primarily due to lower-than-expected nominal GDP growth and ongoing fiscal pressures.
Roets says the impact on citizens will be very damaging. “The country will likely face a reduction in government spending on critical services like education and healthcare and we will almost certainly see increased borrowing costs and a higher tax burden.
“This will hinder government’s ability to fund social grants and infrastructure, which will have a domino effect on private investment and economic growth.”
Potential solution: lower inflation target in MTBPS
A senior analyst from Fitch Ratings predicted the minister’s announcement of a revised 3% inflation target, a potential solution that Sarb governor Lesetja Kganyago has been pushing for some time, arguing that a lower target would support sustainable economic growth and cheaper borrowing costs if inflation slows and interest rates fall. “While the 3% inflation target may be a good longer-term strategy, it will not save ordinary South Africans who are at the end of their tether soon. They need an immediate solution to the cost-of-living crisis,” Roets says.
“Most concerning is that, with the debt load at this level, government can no longer borrow more to finance its expenditure. If it wants to spend more, it will have to increase taxes. This will be a disastrous move that will cripple the country’s taxpayers who are the backbone of the economy.”