The fly in the MTBPS ointment

17 November 2025 – What does the MTBPS tell us about SA’s growth prospects? What does the new 3% inflation target mean for consumers? How did markets react to the MTBPS? Why did S&P upgrade SA’s credit rating? What drove the unemployment rate drop in Q3? What can SA get out of the G20 summit?

The fly in the MTBPS ointment

South Africa’s economy is not growing fast enough. This is the key take-away from the 2025 Medium Term Budget Policy Statement (MTBPS) delivered last Wednesday by the finance minister, Enoch Godongwana – and it is easily lost among the flood of information, mostly positive, about the public finances.

The National Treasury revised its May economic growth forecast for 2025 down from 1.4% to 1.2%. The 2026 growth outlook was also downgraded, from 1.6% to 1.5%. Growth is then expected to rise to 1.8% in 2027 before reaching 2% in 2028, thus averaging 1.8% over the next three years. For comparison, the economy grew by 0.8% in 2023 and 0.5% in 2024.

If it materialises the projected lift in the growth rates is good news for the country. A note of skepticism is warranted because the Treasury’s growth projections are regularly overoptimistic, often considerably so.

Still, higher growth will assist the Treasury in its efforts to get the country’s debt-to-GDP ratio to peak at 77.9% in 2025/26. Mr Godongwana noted that this was the first time since the 2008 financial crisis that public debt would not grow as a percentage of GDP, noting that the Treasury expected debt to GDP to drop to 77% in 2028/29.

However, looking towards the future, the finance minister – and South Africa as a whole – need far higher growth rates. With the population growing at 1.1% per year, it will take a long time to lift real incomes and make a dent in joblessness if the economy is only growing at 1.8%.

Progress in achieving higher growth will be hampered by the struggle to attract more fixed investment, currently registering at around 15% of GDP when it should be closer to 30%. The Treasury is doing its part. But the Government of National Unity (GNU) has not yet shifted the needle on the policies that are deterring investment and higher economic growth.

Treasury targets lower inflation

The finance minister’s statement confirmed the country’s most significant monetary policy change in 25 years: South Africa will now aim for a new 3% inflation target, with a 1 percentage point tolerance band. Inflation targeting will thus change from the current 3% to 6% band to a lower and narrower 2% to 4% band.

This has several positive implications. Lower inflation means lower nominal bond yields and therefore lower refinancing costs for South Africa’s sovereign debt. For every one percentage point drop in the bond yield, South Africa saves R25 billion (bn) to R30bn per year in debt service costs by 2028/29 – or up to R300bn cumulatively over the next decade.

Lower inflation is also strongly positive for South Africa’s households, which spend 60% to 70% of income on inflation-sensitive items on average. A permanent 1.5 percentage point drop in consumer price inflation could add about 1% to 1.5% to real disposable income each year. Poor households benefit the most because food and energy make up an even larger share of their budgets.

Government revenue will be slightly negatively impacted by lower inflation because it means that nominal tax revenue grows more slowly and because lower inflation leaves less scope for “silent” tax increases by means of bracket creep. But this can largely be offset by faster economic growth and more formalisation of the economy.

Markets reward MTBPS discipline

In what would prove to be a truly stunning achievement in the face of strong populist spending temptations, the consolidated budget deficit is forecast to fall to 2.9% in 2028/29 (from 4.7%). This assumes better political pushback against calls for public sector wage increases, policies such as the National Health Insurance, and holding the line on bailouts for state-owned enterprises. Another notable achievement will occur if the primary budget surplus (revenue exceeding non-interest expenditure) improves to 2.5% of GPD (or R224bn) in 2028/29, from 0.5% of GDP in 2023/24.

The MTBPS confirmed the government’s spending priorities: more than two-thirds of total expenditure goes to civil servant wages, social transfers, and debt-service costs. Health, education and social development are allocated R318.9bn in 2025/26. Transnet is offered new support to the tune of R145.8bn, pushing contingent liabilities to R707.8bn.

Preceded as it was by the first GNU leaders meeting in 177 days, the smooth MTBPS process along with some positive signals on the tapering of the debt trajectory will boost market and investor sentiment towards South Africa. This is important for the GNU’s credibility. Following Mr Godongwana’s speech the Rand strengthened to R17.08 against the US$ (from R17.49 on 4 November), while the yield on South Africa’s 10-year government bond fell to around 8.72%, the lowest level since June 2021.

SA gets a ratings upgrade

South Africa’s sovereign credit ratings saw a significant positive development last week. Last week’s MTBPS, which highlighted revenue overperformance, primary budget surpluses, and debt stabilisation, boosted investor confidence and led to a historic upgrade from S&P, one of the Big 3 agencies. This marks the first such upgrade in nearly two decades, since 2005, and positions South Africa as one of only three countries globally to receive an S&P upgrade this year while maintaining a positive outlook.

S&P upgraded South Africa's long-term foreign currency sovereign rating to BB from BB- (two notches below investment grade) and the local currency rating to BB+ from BB. The outlook remains positive, reflecting expectations of sustained fiscal consolidation, GDP growth averaging 1.8% over 2026-2028, and reduced contingent liabilities from state-owned enterprises like Eskom. Analysts from Goldman Sachs and others anticipate potential further positive actions, particularly from Moody’s, contingent on sustained reforms in energy, logistics, and infrastructure. This upgrade enhances South Africa's borrowing costs and attractiveness to investors.

In practice this means South Africa is now consistently two notches below investment grade at two of the three major agencies, with only Fitch still lagging at three notches. Returning to full investment-grade status across all three agencies would therefore require at least two more upgrades from S&P and Moody’s, and three from Fitch, suggesting that full recovery to investment-grade status remains two or more years away.

Unemployment down slightly

South Africa’s official unemployment rate dropped slightly by 1.3 percentage points quarter on quarter, from 33.2% in Q2 to 31.9% in Q3. The construction sector led the charge, creating 130,000 jobs, equivalent to 10.3% quarter-on-quarter growth. The community and social services sector added 116,000 jobs, and trade came in third with 108,000.

The numbers were helped by a change in the methodology introduced to align it with International Labour Organisation guidelines; the new methodology means that more informal jobs are captured. Of the 17 million employed, Stats SA estimates the informal economy accounts for 4 million.

South Africa’s jobless rate first exceeded 30% five years ago, during the Covid-19 lockdowns. Amidst low economic growth and restrictive labour market policies, it has been stuck there ever since, despite numerous government job creation initiatives.

All eyes on the G20 summit in Johannesburg

South Africa hosts the first G20 summit on the African continent this coming weekend in Johannesburg. This concludes the first full cycle of summits, with all G20 countries now having held the presidency. President Cyril Ramaphosa will hand over the presidency to the United States (US), which hosted the first summit in 2008.

The US has used the event, with which Pretoria hopes to enhance its prestige, to snub South Africa by progressively downscaling its participation. Instead of attending in person, President Donald Trump initially deputised Vice President JD Vance to attend, but more recently announced that “no US government official will attend as long as these Human Rights abuses continue,” maintaining that the South African government is not sufficiently addressing violence against white farmers. Argentine President Javier Milei has joined the US in boycotting the summit. The heads of state of China, Mexico, and Russia will not be present either but will send representatives; in the case of Russia, the deputy chief of staff in the Presidency.

The event presents a platform for South Africa to shine at the centre of global diplomacy for 48 hours. It is an opportunity to emphasise the country’s strengths and gives South African businesses with home-ground advantage the chance to connect with international investors.