The 2026 budget marks an important turning point for South Africa. Determined action has put the country’s public finances on a sustainable footing after many years in the fiscal wilderness.
Three years ago, the government made a commitment to stabilise public debt in 2025/26. This budget has delivered. Though the peak in the debt-to-GDP ratio was higher than expected last year, it will fall faster and continue falling throughout the next decade so that more can be spent on public services and infrastructure and less on debt service costs.
From a fiscal perspective we have turned the corner. A new era of fiscal sustainability will create the basis for higher economic growth. However, to take full advantage of this opportunity, fiscal credibility must be combined with the reforms required to support higher economic growth and faster job creation.
A critical lever to attain higher growth is to significantly lift the level of infrastructure investment, which will also provide more and better public services.
Infrastructure investment spurs growth in the short term by raising demand for inputs and workers. But it also builds the productive capacity to sustain longer-term growth.
The capital required to finance South Africa’s very large infrastructure requirement has become significantly cheaper over the past year. Bond yields have declined, the currency has strengthened and one of the major ratings agencies has upgraded South Africa’s credit rating. Government efforts to rein in the public debt and rebuild fiscal credibility have made this possible.
The budget shows a crucial shift in the government’s own spending priorities, from shorter-term consumption towards investments that grow the economy
But much more is needed to unlock investment flows and ensure that projects are delivered successfully.
The government cannot do it alone. It has embarked over the past two years on a series of reforms to mobilise private sector investment and expertise for infrastructure investment. At the same time, we are implementing reforms within the public sector to improve project preparation and delivery. And we are committing public money to catalyse infrastructure investment and crowd in private finance.
The budget shows a crucial shift in the government’s own spending priorities, from shorter-term consumption towards investments that grow the economy. Spending on new infrastructure, as well as upgrades and refurbishment of existing infrastructure, is the fastest-growing item of expenditure by economic classification, increasing by almost 10% a year over the medium term, well above the overall 3.9% increase in consolidated spending.
Private investment can multiply the government’s capital spending, and private appetite for investment in infrastructure is sizeable. The government’s growth strategy aims to leverage that. Under Operation Vulindlela we are opening sectors such as energy and logistics to private participation. Our infrastructure reforms aim to enable private funds to flow.
Recent months have seen notable progress. In December the National Treasury placed South Africa’s first infrastructure bond, successfully raising R11.8bn at favourable rates that reflected strong market interest. This is the first step in creating a new asset class that will build a market in infrastructure financing over time. The money will support priority national projects under the government’s Budget Facility for Infrastructure (BFI), with the public funding leveraging additional private investment.
The BFI, which now has four annual bid windows, has approved R104bn of projects since inception. This includes the current R11.2bn to Transnet to repair the iron and coal corridors as well as improve the efficiency of the Durban container terminal. This investment by the government has been structured to unlock R18bn in private-sector capital to improve the productive capacity of South Africa’s port and rail system.
As new BFI windows are concluded, projects from these windows will be packaged to issue more infrastructure bonds, making this a permanent feature of government funding activities.
The Treasury, with technical assistance from the World Bank, is making good progress on establishing a new credit guarantee vehicle. This listed entity will mobilise private finance at scale for mega-projects such as the expansion of South Africa’s electricity transmission network.
Public-private partnership (PPP) regulations for national and provincial governments have been revised to streamline procedural requirements, close regulatory gaps and clarify institutional roles. Municipal regulations will be amended by June 2026. A massive boost to the PPP pipeline, where there are now 63 PPP projects at different stages of development, will help meet the country’s infrastructure needs.
This year the redevelopment of six ports of entry (Lebombo, Oshoek, Beitbridge, Maseru Bridge, Ficksburg and Kopfontein) will be finalised as a PPP worth R12.5bn. Each port of entry will be redesigned and constructed, including installing infrastructure for broadband connectivity.
Collectively these steps fulfil our commitment to improve the management and regulation of infrastructure by enhancing private sector participation, implementing budget reforms and increasing infrastructure finance
Starting in the current year, this budget also proposes significant investments over the next few years in our commuter rail system. This will reduce transport costs for working families and job seekers and address traffic congestion in major urban centres. Over the next few years Prasa will benefit from:
- a proposed R23.1bn investment in signalling systems across the network;
- a R7.4bn increase to its operations budget to allow it to continue opening new lines; and
- a R5.7bn in-year allocation to ensure its rolling stock programme continues to deliver new trains as the signalling investments allow more trains onto the network.
We have also embarked on reforms to address the dysfunction in municipalities and their challenges in delivering infrastructure in areas from water to waste management. The government is now moving from oversight to active structural intervention. Reforms under way include shifting to a utility model for water and electricity, with these services run like businesses. Revenue from these services will be reinvested into the maintenance of critical infrastructure and not diverted to other spending priorities within the municipality.
To address the delivery crisis in struggling non-metro municipalities, infrastructure projects funded by conditional grants will be delivered by implementing agents such as the Development Bank of Southern Africa, the Municipal Infrastructure Support Agent or the relevant district municipality, where capacity exists. Capable municipalities will continue to manage their own grants.
Collectively these steps fulfil our commitment to improve the management and regulation of infrastructure by enhancing private sector participation, implementing budget reforms and increasing infrastructure finance.
The test will be when we see the cranes and construction sites of projects in progress and when we feel the impact on economic activity. After contracting for the past two years, we expect gross fixed capital investment to grow by 2.4% in 2026 on the strength of lower borrowing costs, improved housing demand and rising business confidence.
South Africa’s ailing, ageing infrastructure has long weighed on its ability to attract investment and grow our economy. The reforms under way will help to lift that weight and position the country for faster growth.
• Dr Pieterse is the director-general of the National Treasury
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