D-Day for Godongwana in South Africa’s R215 billion battle

Despite lower-than-expected spending, South Africa is on track to report a bigger fiscal deficit for the 2025/26 fiscal year than budgeted.

While there is some hope for recovery in the second half of the year, revenue will have to rise substantially and expenditure will need to fall for South Africa to reach the targets set in the May Budget.

Therefore, all eyes will be on Finance Minister Enoch Godongwana in the upcoming Medium-Term Budget Policy Statement (MTBPS), as the market look for signs of fiscal slippage.

Investec chief economist Annabel Bishop explained that this statement, sometimes referred to as the ‘mini-budget’, is not expected to see any tax changes.

Instead, the MTBPS will provide revenue and expenditure updates, with markets set to keep a close eye for fiscal slippage, which is the trajectory South Africa appears to be on.

“The fiscal trajectory has been one of slippage, but revenue flows are also uneven between months, and there is scope for some catch-up on the revenue front to prevent the fiscal deficit from exceeding budget,” Bishop said.

In the May 2025 Budget, Godongwana said South Africa’s consolidated budget deficit is expected to reach 4.6% of GDP, or R361.3 billion, in the 2025/26 fiscal year.

Based on the data available for the first five months of 2025/26, revenue stands at R742 billion.

The Treasury budgeted revenue for the full year at R1.95 trillion. Bishop calculated that this means revenue in the first five months of 2025/26 was expected to be around R813 billion. Therefore, the first five months of revenue are below budget.

Positively, from an expenditure perspective, spending for the year-to-date is at R957.3 billion for the first five months of 2025/26.

The budget for the year projected total expenditure of R2.31 trillion, meaning the first five months of 2025/26 was expected to see spending of around R962.8 billion. Therefore, expenditure is under budget for the year so far.

However, Bishop explained that, based on the total R361.3 billion deficit the Treasury projected for 2025/26, the year-to-date deficit should be around R150.5 billion.

Therefore, despite lower-than-expected expenditure, the fiscal deficit is currently R215.2 billion, much wider than budgeted. This can be seen in the table below.

All eyes on Godongwana

There is still some hope that South Africa will narrow its deficit, with the September data set to be released soon.

“But, even with no widening of the deficit from its current R215.2 billion, it will not reach R180.7 billion, half the year’s R361.3 billion budget,” Bishop said.

“That is, revenue will have to rise substantially, and expenditure fall in September, from August’s levels, in order for South Africa’s provisional financing figures to move towards half of the budgeted deficit by half of 2025/26.”

However, she said there are some positive signs, as the current figures point to a less worsening budget compared to last year, when borrowings were increased to fund expenditures in a poor revenue year.

Bishop explained that expenditure projections in 2024/25’s MTBPS were revised substantially higher due to special adjustments not previously budgeted for.

This included the repayment of SANRAL debt, legal costs for South Africa’s case in the International Court of Justice, and an increase in the social relief of distress grant.

In addition, the 2024/25 MTBPS saw adjustments for emergency funds related to the South African National Defence Force troops’ deployment in the Democratic Republic of the Congo.

All of these additional costs severely widened the deficit and contributed to the Budget debacle South Africa saw in early 2025.

In its February 2025 Budget, the National Treasury proposed implementing a two percentage point increase in the value-added tax (VAT) rate.

However, before Godongwana could present this Budget, members of the Government of National Unity (GNU) said they would not vote to pass it, sending the Treasury back to the drawing board.

A second Budget set to be presented in March was also struck down, with Godongwana only tabling the final 2025 Budget in May.

The uncertainty this back-and-forth caused proved very damaging to South Africa, with South Africa’s ten-year bond yield rising to 10.97% before dropping to 9.00% after the May budget.

“Financial markets will therefore be watching the proposed debt and deficit figures in this year’s MTBPS very closely, along with any additional allocations for expenditure, with the GNU and the public not finding funding via large tax increases palatable,” Bishop said.