MTBPS Delivers Good News for Investors

On Wednesday, November 12, Finance Minister Enoch Godongwana delivered his Medium-Term Budget Policy Statement (MTBPS) in parliament, updating South Africans on the state of the government’s coffers and measuring performance against the annual Budget presented in March. The minister also reported on progress on economic development and policy reform.

Key points for consumers and investors were that the fiscus and economy are in better shape than the March Budget predicted and that the government is fully committed to a lower-interest-rate, lower-inflation environment, revising the SA Reserve Bank’s inflation target range from 3-6% with a midpoint of 4.5% to 2-4% with a midpoint of 3%. 

Commenting on the minister’s presentation, Siphamandla Mkhwanazi, senior economist at FNB, and Chantal Marx, head of investment research at FNB Wealth and Investments, reported that tax revenue for the 2025/26 tax year was expected to come in at R19.7 billion above Budget estimates. This was mainly due to higher-than-expected revenue from VAT and once-off corporate and dividend tax collections. Non-interest government spending was revised upwards by R15.8 billion, while the cost of servicing government debt was revised downwards by R4.8 billion, “underpinned by lower interest rates, low and stable inflation, and a stronger currency”.

Mkhwanazi and Marx reported that the government was continuing to consolidate spending, expecting slowly to bring down its debt from 77.9% of GDP in 2025/26 to 67.9% of GDP by 2033/34.

Lower inflation target

By endorsing a 3% inflation target, Mkhwanazi and Marx said the minister was aligning South Africa closely with other emerging markets, such as the Philippines, Mexico, Colombia, and Hungary. “The target is expected to be achieved by 2027,” they said.

“The lower inflation target should create space for further interest rate cuts, which we expect to materialise next year. Treasury’s own projections reflect a repo rate trajectory that falls to 6.75% by end of 2026 and 6.25% by end of 2027. Over the long term, lower interest rates that accompany the inflation target support higher investor confidence and reduce borrowing costs for households, businesses and government, improving debt sustainability and creating a foundation for stronger, more predictable economic growth.”

Implications for investors

They said that, on balance, the MTBPS was more positive for bonds than for equities although it will be perceived as largely market positive.

Given the improvement in the fiscus, commitment to consolidation and more productive expenditure, Mkhwanazi and Marx suggested there would be an “earlier-than-expected” credit rating upgrade for South Africa by credit rating agency S&P Global, which “would be positive for bonds and further reduce the government’s debt-servicing bill”. On Friday November 14, S&P Global did, indeed, upgrade South Africa’s rating – the first time in 20 years.

They added that, given the strong revenue performance, there are no upward tax adjustments expected next year. “This will come as a relief to businesses and consumers and will be positive particularly for sectors such as retailers.”

Market reaction

Casey Sprake, economist at Anchor Capital said the market response was “quick and positive – the rand strengthened, bond yields eased, with bullish sentiment around ‘SA Inc’ stocks.” The minister’s announcements to reduce the government’s inflation target to 3% and to cut Treasury’s weekly issuance of fixed-rate bonds from R3.75 billion to R3 billion “marked a shift in tone”, Sprake said. “The MTBPS reflected a commitment to coordination, prudence, and discipline – key ingredients for investor confidence.”

Jurgen Eckmann, wealth manager at Consult by Momentum, commented: “The minister’s upbeat tone reflects what many investors have been hoping to hear for years: that South Africa’s finances are finally on a stronger footing. For the first time since 2008, government debt is expected to stabilise and the country will post a primary budget surplus, meaning we’re funding core spending from tax revenue rather than new debt. That’s an important shift, showing that the fiscus is starting to live within its means.

“Overall, the numbers point to cautious optimism. A more disciplined fiscus, improved policy certainty, and gradual structural reform should help build investor confidence and, ultimately, a healthier economy.”