To entrench commitments to healthy public finances, national government will introduce legislation requiring each new administration to table a medium-term fiscal plan to embed fiscal sustainability, Finance Minister Enoch Godongwana confirmed during the 2026 Budget speech on February 25.

Since 2008/09, government’s debt ratio has more than tripled with debt service costs having risen from 8.8% of revenue in 2008/09 to 21.3% in 2025/26, which crowds out other spending.

Over the next three years government aims to anchor fiscal policy with the primary budget surplus, which means a continued expected increase in the fiscal surplus will ensure government debt embarks on a sustainable path.

A debt-reducing main budget primary surplus will therefore anchor fiscal policy over the medium term.

“National Treasury developed a debt sustainability model to assess risks to the fiscal framework and inform good fiscal decision-making,” Godongwana stated, adding that departments would need to be more deliberate in motivating their budgets rather than simply increasing them by inflation each year.

Departments will have to provide evidence-based assessments for the continuation of programmes and projects. 

Treasury ultimately proposes a principles-based obligation to anchor fiscal sustainability in law, requiring each new government to table a plan to ensure that the fiscal position is sustainable throughout its term of office and that an appropriate fiscal metric is selected to measure compliance. This will build confidence and maintain the gains of fiscal consolidation without resorting to painful spending cuts or tax increases.

Treasury aims to announce details of this fiscal anchor endeavour in the 2026 Medium-Term Budget Policy Statement (MTBPS).

DEBT FIGURES
For the first time this decade, debt service costs will grow slower than government’s overall expenditure.

South Africa debt-to-GDP ratio is currently at 78% which is unsustainable but is at least the peak, according to Godongwana.

The higher debt is attributed to weaker nominal GDP growth and increased borrowing in 2025/26.

Government’s interest on debt has grown faster than the economy and takes a larger slice of the Budget than basic education, health or social protection.  

“By sticking to a responsible plan, government is making the economy stronger for all South Africans,” Godongwana said.  

He affirmed that South Africa’s debt as a share of economic output would reach its highest point this year and then start to decline. The main budget deficit is R12.4-billion lower than forecasted at the time of the 2025 Budget as a result of strong fiscal outcomes for the first ten months of 2025/26.

He expects the country’s GDP to grow by 1.6% this year and by 2% in 2028.

South Africa’s debt service costs as a percentage of revenue will decrease from 21.3% in 2025/26 to 20.8% in 2026/27 and continue to decline to 20.6% and 20.2% by 2027/28 and 2028/29, respectively.

Principal and interest payments are expected to be R21-billion lower than estimated in the 2025 MTBPS while revenue collections for 2025/26 are projected to be R28.8-billion higher than the 2025 Budget estimate. This means non-interest expenditure will increase by R22.1-billion and government will achieve a primary surplus of 0.9% of GDP.

The consolidated budget deficit is expected to narrow from 4.5% of GDP in 2025/26 to 3.1% of GDP in 2028/29. Likewise, National Treasury predicts the main budget primary surplus will increase from 1.6% of GDP in 2026/27 to 2.3% of GDP in 2028/29.

Debt service costs have been revised down by R10.6-billion over the medium term, driven by improved bond yields, an appreciating rand and lower inflation and interest rates.

An estimated R12-billion of savings under the Targeted and Responsible Savings (TARS) initiative over the medium term can markedly improve service delivery.

The TARS initiative was announced in the 2025 MTBPS as part of a series of efforts underway to rationalise the operations of the State, improve the effectiveness of service delivery, eliminate waste, address underperformance and reduce duplication.

Treasury is conducting consultations across government Ministries and departments to identify further savings. In most cases government is reallocating or shifting savings to priority areas or spending pressures – for example, within the transport sector – thereby removing the need for additional allocations.