By Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Ame Muller
The 2026 Medium-Term Budget Policy Statement (MTBPS) has strengthened the fiscal foundation for the next phase of the growth strategy. The deficit is narrowing, the primary surplus is strengthening, and debt has stabilised and is now projected to decline as a share of GDP. Importantly, the improved revenue position is being used to protect priority spending and support infrastructure rather than creating additional permanent expenditure. The next challenge is to convert this improved fiscal position into stronger potential growth.
This places structural reform, infrastructure execution and greater private-sector participation at the centre of the growth outlook. Progress is underway on electricity, logistics, rail, water, and visa reform, while new mechanisms are being developed to improve project preparation, financing, and risk-sharing.
The direction of policy now suggests that government is seeking to move from being the sole provider and financier of infrastructure towards an enabler that crowds in private capital, expertise and operational capacity.
At a municipal level, this shift is particularly important. Government is moving from oversight towards active intervention, including stronger action against persistent financial mismanagement, improved revenue collection and wider use of smart meters. In June, equitable-share transfers were suspended for 69 municipalities that had persistently failed to pay creditors; by the end of July, 37 had concluded repayment plans and R4.2 billion had been paid to creditors. An additional R3.5 billion is being allocated over the medium-term expenditure framework (MTEF) for smart-meter rollout.
The broader infrastructure strategy is similarly shifting from how much government spends to what that spending delivers. The Infrastructure Finance and Implementation Support Agency (IFISA) is now operational and supporting projects with potential investment value of more than R217 billion. Of the 68 projects in the Public Private Partnerships (PPP) pipeline, 31 are municipal. The Budget Facility for Infrastructure (BFI) has approved more than R100 billion in fiscal support, while the infrastructure bond has raised more than R14 billion. The Credit Guarantee Vehicle (CGV) is also being developed to mobilise private capital into critical infrastructure.
However, the challenge is that some of the most important reforms are taking longer than planned. Electricity distribution reform, the restructuring of freight-rail infrastructure and elements of water-sector reform remain delayed. This matters because South Africa's growth constraint is increasingly becoming less about the absence of policy frameworks and more about implementation capacity.
The same applies to infrastructure. The International Monetary Fund's (IMF's) Public Investment Management Assessment points to relatively strong institutional frameworks but significant gaps between planning and actual infrastructure outcomes (see Figures 1 and 2). This suggests considerable scope to improve the economic return on existing public investment through better project selection, preparation, implementation and maintenance, rather than just increasing spending.
Stronger investment management could close two-thirds of South Africa's infrastructure efficiency gap
The MTBPS therefore marks an important shift from fiscal stabilisation towards execution. Initiatives such as IFISA, PPP reform, the BFI, infrastructure bonds and the CGV are important because they can improve project preparation, risk allocation and private-sector mobilisation. The priority should now be to move projects from planning to financial close, from financial close to construction, and from construction to reliable service delivery.
Overall, fiscal consolidation provides the stability needed to attract capital, but structural reform and execution will determine whether that stability translates into higher productivity, potential growth, and employment.
Week in review
Headline inflation rose to 4.5% year-on-year (y/y) in September from 4.4% in August. Monthly pressure was 0.4% month-on-month (m/m), mainly driven by fuel and core inflation. Core inflation eased marginally to 4.0% y/y, with monthly pressure of 0.2% m/m, led by housing and public transport. Services inflation recorded 0.3% m/m, and 4.9% y/y. Average fuel prices rose by 6.2% m/m and were 27.9% higher than in September 2025. Food and NAB inflation ticked up to 1.2% y/y, from 1.1% previously, while monthly pressure was -0.1%, reflecting deflation in meat and vegetable prices.
Retail sales growth eased slightly to 3.3% y/y in August, from 3.4% in July. On a month-on-month seasonally-adjusted basis, sales volumes declined by 0.3%, following a 2.4% increase in July (revised from 2.5%), suggesting some loss of momentum after July's strong gain. The release suggests that consumer spending is holding up, consistent with the recovery in the FNB/BER Consumer Confidence Index (CCI) to -13 in 3Q26 from -19 in 2Q26, although sentiment remains in negative territory. The monthly decline likely reflects fading fuel price relief in August as diesel rose by R1.38/litre and petrol was cut by only 52c/litre, and food and non-alcoholic beverages inflation edged up to 1.1% y/y.
Weekly Round-Up: Economics from Broader Africa
Recent developments across the region point to a stronger focus on economic diversification, fiscal repair and investment-led growth, although country-specific vulnerabilities remain significant. Botswana is seeking to convert diamond wealth into broader economic development, while Ghana is advancing an ambitious industrialisation agenda. Eswatini and Mozambique face more immediate fiscal consolidation pressures, with implementation and social costs likely to determine the success of adjustment efforts. Elsewhere, Lesotho's export performance remains vulnerable to textile weakness, Namibia's vehicle market continues to show resilience despite rising affordability pressures, Nigeria's disinflation is progressing but underlying price and external-sector risks remain, while Zambia is taking incremental steps towards greater use of the yuan in its trade and financial relationships with China. Overall, the regional picture remains mixed: reform and investment initiatives are improving medium-term prospects, but fiscal constraints, implementation risks and exposure to external shocks continue to temper the outlook.
