The Mid-Term Budget, Explained

Finance Minister Enoch Godongwana delivered the 2025 Mid-Term Budget Policy Statement (MTBPS) with an unexpectedly optimistic tone, signalling what Treasury describes as a “turn toward steadier ground” for South Africa’s economy. After a turbulent start to the year—marked by three separate budget days following a February delay—the latest figures suggest a slow but meaningful shift toward fiscal stability.

Godongwana’s address highlighted stronger-than-expected fiscal numbers, healthier debt dynamics, and a confirmed lower inflation target of 3%, a significant recalibration aimed at anchoring long-term expectations and supporting lower interest rates. These shifts point toward an economic environment that may finally be gaining traction after years of volatility.

A Deficit in Decline

The overall budget deficit, long a pressure point for South Africa, is expected to narrow from 4.5% of GDP to 2.7% by 2028/29, returning to levels last seen before the global financial crisis. This improvement is underpinned by better revenue performance and tighter spending controls.

Debt Stabilisation Brings Breathing Room

The gross debt-to-GDP ratio—often a red flag for ratings agencies—is projected to stabilise in 2025/26 before beginning a gradual decline. Lower borrowing costs have reduced fiscal pressures, giving Treasury more room to invest, particularly in infrastructure and social priorities.

A Growing Primary Surplus

One of the strongest signals of improved fiscal health is the expansion of the primary budget surplus, which is expected to grow steadily over the next three years. A rising surplus suggests government is finally reducing reliance on debt to fund operations—a meaningful structural improvement.

Revenue Gains Surpass Expectations

South Africa’s tax collections outperformed significantly. Revenue for the first half of the 2025/26 year reached R787 billion, up 9.3% from the previous year and R17.5 billion ahead of budget forecasts. This boost has helped cushion spending pressures and reinforces Treasury’s improved projections.

Inflation Target Lowered to 3%

A standout policy shift in this MTBPS is the formal adoption of a 3% inflation target. Aligning more closely with global norms, the move supports the Reserve Bank’s push for price stability, with the broader aim of securing lower long-term interest rates and improving household purchasing power.

Economic Growth Outlook

Treasury expects economic growth to average 1.8% over the medium term. The 2025 forecast has been revised slightly downward to 1.2%, reflecting persistent structural constraints—but the overall direction, officials argue, remains positive.

The Bigger Picture: A Return to Calm

The first half of 2025 delivered rare fiscal turbulence, but the latest data points to a stabilising environment. Higher revenues, moderating expenditure, and easing borrowing costs have collectively strengthened the state’s financial footing. The improvements offer Treasury greater confidence to invest and plan without the acute pressures that have hampered previous budget cycles.

The Bottom Line

South Africa is far from out of the woods—structural reforms, policy certainty, and improved service delivery remain urgent priorities. But the 2025 Mid-Term Budget paints a cautiously hopeful picture. With healthier public finances, cooling inflation, and a slow return of confidence, the country may finally be stepping onto a more stable economic path.

For households, businesses, and the fiscus alike, this MTBPS offers something rare in recent years: a triple win, and a moment to breathe.