In a policy landscape littered with failed plans and recycled promises, the 2025 medium-term budget policy statement (MTBPS) signals a pragmatic shift. With a clear focus on fiscal credibility, measurable structural reforms and a recalibrated development agenda that places municipalities at the heart of its growth strategy, the MTBPS appears to deliver the essential ingredients for a virtuous fiscal cycle.
Central to the MTBPS is a commitment to restoring fiscal sustainability. Since the 2008 global financial crisis, South Africa has faced steadily widening deficits and rising debt. However, the 2025 MTBPS foresees public debt stabilising at 77.9% of GDP in 2025/2026 — marginally above the abandoned May 2025 budget estimate of 77.4%, but still marking a critical turning point. If achieved, this would be the first time since 2008 that growth in expenditure does not outpace revenue growth, and debt no longer rises as a share of GDP.
Other key fiscal metrics for 2025/2026 reinforce this positive shift. The country is set to record its third consecutive primary budget surplus, at 0.9% of GDP. Revenue collection is expected to exceed budgeted estimates by R19.3bn and debt-servicing costs have been reduced by R4.8bn.
These outcomes are all the more remarkable given that the National Treasury’s formal adoption of the 3% inflation target lowers nominal GDP, worsening fiscal ratios. Furthermore, the MTBPS framework is based on a revised growth estimate of 1.2%, down from the 1.9% growth forecast in the abandoned March 2025 budget. The fact that the Treasury’s medium-term growth estimates broadly align with the market consensus lends credibility to its projections.
Because structural reforms remain essential to long-term fiscal sustainability, the MTBPS outlines targeted reforms aimed at improving efficiency, accountability and service delivery.
Two particular developments stand out. First, capital expenditure is set to grow by 7.5% in the medium term, making it the fastest-growing spending category, signalling delivery on the long-promised pivot towards infrastructure-led growth. Second, the launch of a procurement payments dashboard introduces a new layer of transparency and oversight. The dashboard allows anyone to track payments made to suppliers by national and provincial departments, enabling early detection of irregularities in public spending.
The Treasury acknowledges that national policy alone cannot resolve municipal service delivery failures
Perhaps the most consequential shift in the MTBPS is the localisation of reform. The Treasury acknowledges that national policy alone cannot resolve municipal service delivery failures. Municipalities vary widely in capacity, governance and financial health. Business organisations have long warned that the dysfunction of municipalities poses a critical threat to sustainable, inclusive economic growth.
In response, the government is adopting a more flexible, performance-driven model that replaces blanket compliance with targeted support. This will allow for engagement to be tailored to match the diverse realities of municipalities.
A key element of this approach is the new partnership with the World Bank, which supports the metro trading services programme — a $3bn reform initiative aimed at helping metros improve service delivery and upgrade ageing infrastructure. The trading services programme will be implemented via a “programme for results” financial model, the first of its kind in South Africa.
The metro trading services grant is the core funding mechanism of the broader programme, which is co-financed by a $925m World Bank loan and R43bn in domestic funding. The grant is a performance-based fiscal transfer to the country’s eight largest metros. These metros, which the World Bank estimates are home to more than 22-million people and responsible for 85% of national economic activity, have long suffered from underinvestment and weak governance.
The programme targets improvements in water and sanitation, electricity distribution and solid waste management
The programme targets improvements in water and sanitation, electricity distribution and solid waste management. Crucially, funding is conditional: disbursements are tied to performance indicators such as revenue collection, infrastructure maintenance and governance. If targets are missed, funding is withheld. This results-based model incentivises reform, introduces international oversight and reinforces the Treasury’s commitment to transparency. Capacity building is an integral part of the plan, with metros receiving support to upgrade systems and train personnel — ensuring the goal is not limited to infrastructure repair but also delivers institutional renewal and restores public confidence.
One example of municipal dysfunction is the chronic underspending of conditional grants. According to the Treasury’s own data, only 29.1% of direct conditional grants allocated to municipalities were spent by the end of 2024 while the balance — more than R31bn — was returned to the Treasury.
This highlights the lack of capacity in municipal planning, project execution and financial management. It also underscores the urgency of the trading services programme’s capacity-building agenda. Without stronger local institutions, even the best-designed funding models will falter.
As the frontline of service delivery and local development, municipalities that function well will attract investment, support businesses and improve residents’ quality of life. The programme repositions metros as the engines of reform, with the World Bank loan serving as both catalyst and accountability mechanism.
The programme’s strategic objectives include restoring investor confidence through improved infrastructure and governance, reducing fiscal pressure on the national government by strengthening local revenue systems, promoting inclusive growth in underserved areas and supporting the energy transition through grid upgrades and renewable integration.
In a marked change from the past, these are no longer aspirational goals but rather operational targets, tied to measurable outcomes.
However, as fatigued South Africans are all too aware, numerous risks remain. Until the economic growth trajectory is changed, persistently low growth will continue to constrain revenue and limit fiscal space, raising the spectre of a debt cliff. Political uncertainty ahead of the 2026 local government elections could disrupt reform momentum. Municipal capacity to implement reforms varies widely, and some metros may struggle to meet performance targets. These are hardly minor hurdles but rather structural vulnerabilities. Political will and accountability will be required to overcome them.
At the same time, the MTBPS opens new opportunities. Blended finance models such as the trading services programme could be extended to other sectors and regions. The government’s growing appetite for public-private partnerships may accelerate infrastructure delivery, while data-driven governance can improve planning, monitoring and citizen engagement. These measures could act as levers for systemic change, rather than simply delivering improved fiscal efficiency.
Financial markets have responded positively to the MTBPS. Late last week, S&P Global upgraded South Africa’s foreign-currency long-term sovereign rating to “BB” from “BB-”, citing a stronger growth outlook, improved fiscal metrics and reduced risks from state-owned enterprises such as Eskom. This marks the first upgrade by a major credit rating agency in more than 16 years. South Africa remains two notches below investment grade, but the “positive” outlook reflects growing confidence in its fiscal reform trajectory.
Encouragingly, the MTBPS potentially sets the stage for a virtuous fiscal cycle. Lower bond yields, initially in response to the Reserve Bank’s informal adoption of a 3% inflation target and now reinforced by the MTBPS’s clear commitment to fiscal discipline and price stability, have already begun to reduce debt-servicing costs. Debt stabilisation, combined with stronger revenue and tighter expenditure controls, is clearly boosting investor confidence. If sustained, these dynamics could ultimately reinforce each other: as lower yields reduce debt costs, resources are freed up for growth-enhancing investment, which in turn supports revenues and allows for an acceleration in fiscal consolidation.
With metros now positioned as central actors and the World Bank partnership reinforcing discipline and oversight, it seems the groundwork is being laid for more sustainable, inclusive growth.
As always, execution remains critical. But with a more credible framework, clear financial incentives and a more broadly consultative political process, this year’s MTBPS could be a defining moment in South Africa’s journey towards sustainable development and renewed investor confidence.
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