DUNCAN PIETERSE | Treasury is leading SA onto a path of quiet but firm growth

The Medium-Term Budget Policy Statement (MTBPS) often struggles to compete for attention with the Budget Review typically tabled in February. Perhaps that is because it is shorter and devoid of policy announcements that capture the public imagination, such as tax changes. However, the MTBPS remains the most important signal of the government’s fiscal stance. It updates the country’s economic outlook, makes important fiscal adjustments and policy announcements, and sets out the three-year expenditure framework.

As we approach the tabling of the 2025 MTBPS, and before the National Treasury enters our traditional closed period, it is worth reflecting on what has changed in the past year. When the 2024 MTBPS was tabled a year ago, the Rand was trading at R17.65 to the Dollar, and our benchmark bond yield was at 10.44%. The global environment appeared more stable and our domestic economic recovery was expected to gain pace, helped by stabilising electricity supply and confidence in the new government of national unity.

Much has changed since then. First, the macro-economic environment is more uncertain and more challenging than it was a year ago. The global economic outlook has become more unpredictable amid tariff wars and geopolitical tensions. South Africa’s economic growth has disappointed against a difficult global and local backdrop and it has become clear that reforms will take time to translate into higher growth. And yet, almost a year later, and despite these global and domestic headwinds, the Rand is trading at R17.18 against the Dollar and our benchmark yields are at 9.10%. How can we explain this apparent contradiction?

The reality is that our fiscal position is steadily improving, and this has contributed to better macroeconomic fundamentals. The government is on track to show a growing primary budget surplus, where revenue exceeds non-interest expenditure, for the third consecutive year. We also plan to deliver on our commitment to stabilise the debt-to-GDP ratio in the current fiscal year.

The government is on track to show a growing primary budget surplus, where revenue exceeds non-interest expenditure, for the third consecutive year.

This is not easy, but it demonstrates the government’s commitment to restoring fiscal credibility. Meeting our fiscal goals in an environment in which economic growth continues to disappoint is doubly difficult because it requires more effort to reach these goals.

All the fiscal ratios are measured relative to nominal GDP, in current (money) terms rather than against real, inflation-adjusted GDP. Lower than expected real GDP growth means lower nominal growth. So too does the faster than expected slowdown in inflation, even though that is good news for the economy. Targets for the fiscal ratios will therefore be harder to achieve and may require additional fiscal measures.

Our commitment to our fiscal targets is essential if we are to rebuild the fiscal credibility that was lost in the years in which targets were consistently missed. The loss of credibility cost the economy dearly. When investors doubt that a government is able to run the public finances soundly and sustainably so that it can meet its debt obligations in the long term, they demand higher interest rates to compensate them for the perceived higher risk.

Over the past year, however, the risk premium has declined meaningfully, thanks to global factors and to improved confidence in South Africa’s own policies. It is still not back to pre-2020 levels. However, as we continue to turn around the public finances and rebuild lost credibility, along with accelerating reforms and lifting economic growth, South Africa can lock in the improved risk premium and aspire to an upgrade in its credit ratings. That would help to lower borrowing costs across the economy, supporting higher and more sustainable rates of investment, job creation and growth, and freeing up more resources for service delivery.

A second change over the past year could support this trend. The unprecedented contestation over the 2025 Budget brought the state of the public finances squarely to the foreground of debate within society. During the delayed tabling of the Budget, on April 7 the Rand traded at R19.66 against the US Dollar, while benchmark yields had been at 11.1%, highlighting how Budget tensions unsettled the investors funding the government’s spending plans.

Difficult and costly as it was at the time, we emerged from the process with wide consensus on the need for South Africa to stay the course on restoring fiscal credibility and a government-wide commitment to greater spending efficiency which the MTBPS will take forward.

We have embarked on a multi-year reform to shift the trajectory from spending more to spending better. The tone of the conversation within government is starting to change. An emboldened and reconfigured Treasury Committee on the Budget (TCB) that advises the Minister’s Committee on the Budget has identified programmes or projects that should be closed because they yield poor outcomes, or duplicate other efforts. The MTBPS will show that some early savings can be achieved, but the process will accelerate and yield more significant efficiencies over the medium term. Treasury has also embarked on a data driven audit of so-called ghost workers that will become a permanent feature of the efficiency ecosystem and soon reveal its potential to contribute to fiscal savings.

Crucially, however, spending efficiency does not mean restrictive fiscal policy. It is about redirecting spending towards areas that can lift the rate at which our economy expands, as well as improve services for citizens. A year ago, we announced a series of reforms to boost investment in public infrastructure and unlock private capital to support this.

The MTBPS will report back on progress. New public-private partnership regulations took effect on June 1 and will enable greater private sector involvement in infrastructure delivery. Working with the World Bank, Treasury is poised to launch a new Credit Guarantee Vehicle by June 2026 that will derisk infrastructure projects and unlock billions of rands of private sector investment, initially in new transmission infrastructure. Reforms are underway to improve project execution and investment planning at national and local government level. The budget facility for infrastructure now opens for project proposals quarterly, enabling a more agile and responsive infrastructure pipeline. The MTBPS will again increase allocations for infrastructure.

The MTBPS will underline Treasury’s quiet but firm commitment to deliver on its targets and rebuild South Africa’s fiscal credibility, unlocking a virtuous cycle of cheaper capital, higher investment and consumption, and stronger economic growth and service delivery.

• Pieterse is a UCT and Harvard graduate, is the director-general of the National Treasury