Last year, South Africa’s National Budget Speech was mired in controversy. Disagreements among parties in the Government of National Unity (GNU) over a proposed two percentage point increase in VAT delayed the presentation of the final budget and rattled markets. Finance Minister Enoch Godongwana’s National Budget Speech this year offered a striking contrast to that chaos.
GNU members negotiated in a spirit of collaboration and produced a budget free from shocks and drama. There were no interruptions in Parliament, no shouting from the floor and no last-minute postponements. Most of the surprises in the National Budget Speech were welcome ones, delivering good news for middle-class taxpayers, wealthy individuals, small business owners and bond markets alike.
As STANLIB chief economist Kevin Lings points out, the key theme of the budget this year is fiscal discipline, as evidenced across six dimensions:
- A narrowing budget deficit: The budget deficit has been reduced to 4.5% of GDP in 2025/26, down from 6% not long ago. A target of 4% of GDP is in view for 2026/27.
- Debt stabilising as a share of GDP: After years of expansion, the national debt-to-GDP ratio appears to have peaked and is expected to trend downwards from now onwards. The peak of 78.9% of GDP in 2025/26 is higher than earlier projections. This is partly because of weaker nominal GDP growth and partly because the Treasury chose to take advantage of strong investor demand to increase bond issuance.
- A growing primary budget surplus: The main budget primary surplus (revenue less expenditure excluding interest payments) reached 0.9% of GDP in 2025/26 and is projected to expand to 1.6% in 2026/27. This is an important measure of fiscal health and discipline.
- Modest expenditure growth: Total government expenditure is rising at a moderate 3.5% per year, a pace that aligns with the South African Reserve Bank’s (SARB’s) lowered inflation target.
- Falling interest costs as a share of debt service: The government is budgeting for interest costs to rise by only 2.8% – a dramatic improvement on the 15 to 18% increases that were being absorbed in recent years.
- Plans for a fiscal anchor: National Treasury plans to introduce a fiscal anchor in the October 2026 Medium-Term Budget Policy Statement. Such a set of fiscal rules could entrench long-term budgetary discipline and further improve South Africa’s credibility with bond markets and international investors. It could even pave the way for further upgrades from the international credit rating agencies.
Against this positive fiscal backdrop, Lings sounds a note of caution. South Africa’s economy is projected to grow at just 1.6% in 2026, edging up from 1.4% in 2025, and is expected to average 1.8% over the medium term. Population growth means that per-capita GDP is barely moving. What’s more, South Africa is an underperformer relative to emerging market peers that are growing at around 4.5% per year.
From a Dynasty perspective, we welcome many of the Finance Minister’s proposals in this budget as well as the progress being made towards fiscal consolidation without needing major tax increases. The National Budget builds on positive developments of 2025, such as South Africa securing its first credit rating upgrade in 16 years and getting removed from the FATF grey list.
That said, we share Lings’ concern about South Africa’s stubbornly low rate of economic growth. The National Treasury and SARB have done a sound job of managing fiscal and monetary policy. Inflation is under control. Public finances are being stabilised. Borrowing costs are falling. But these stable macroeconomic conditions are not enough on their own to create growth.
Urgent economic reforms are still moving too slowly. Infrastructure such as electricity, water, rail and ports still suffer from underinvestment and poor maintenance. And unsustainable debt levels at municipalities and parastatals still need to be addressed. There are policies in place to address these challenges, but execution remains poor. The machinery of government is still not working as well as it should.
We also remain mindful that South Africa has also benefited from favourable external forces. Roaring commodity prices, low oil prices and a weak US dollar have all provided tailwinds. The real test of South Africa’s fiscal resilience will come if and when these factors change. But for now, the National Budget Speech offers reasons to celebrate, especially when compared to last year’s fiasco. What a difference a year makes!
“For the first time in 17 years, debt will stabilise, and it will continue to fall in the coming years. The budget deficit has narrowed significantly, and debt-service costs are also falling. The world has taken notice.”
– Finance Minister Enoch Godongwana, 2026 National Budget Speech
“Godongwana delivered a Budget that did exactly what markets needed it to do: it confirmed the fiscal consolidation story and signalled that South Africa’s hard-won credibility is not being squandered.”
– Lullu Krugel, PwC SA Chief Economist
Global News
- Trump used his Tuesday State of the Union address, the longest ever, to defend his economic record, describing the US as “bigger, better, richer and stronger than ever before,” emphasising that inflation was easing and incomes were rising, even as affordability concerns among voters persist. He offered relatively modest new proposals to Congress and largely avoided major policy announcements, while touching on Iran’s nuclear ambitions, immigration and tariffs. The speech drew mixed reactions from lawmakers and analysts, who noted that key voter priorities, such as cost-of-living pressures, were largely unaddressed, a dynamic that may shape investor sentiment and market expectations as political and economic uncertainty persists ahead of the midterm elections.
- Ahead of Trump’s address, a Tuesday analysis by Reuters showed that, more than a year into Trump’s second term, uncertainty surrounding the US economic outlook has deepened. Key indicators show a mixed economic picture, with stronger-than-expected GDP growth and an AI-driven investment surge alongside stalled job gains and persistently elevated inflation. Manufacturing output has improved despite higher borrowing costs, but factory employment has continued to decline. Tariffs, a central pillar of Trump’s policy agenda, haven’t yet narrowed the US trade deficit, which initially widened as businesses accelerated imports ahead of levies.
- Trump’s new 10% global tariffs, signed under the Trade Act, took effect on Tuesday. This came just hours after a six-to-three Supreme Court ruling last Friday invalidated taxes under the International Emergency Economic Powers Act. The new tariffs resulted in the EU halting trade talks and India calling off a trade trip. In retaliation, Trump said the Trade Act levies would be expanded to 15%. This heightened trade uncertainty after countries were already jittery over the Supreme Court’s decision.
- Applications from US nationals for British citizenship rose to a record 8,790 in 2025, the first year of Trump’s second term, up 42% from 2024, according to Home Office data published yesterday. A record 2,490 applied in the final quarter. The surge in demand for UK citizenship reflects growing interest among Americans in mobility options and may be driven in part by political and social conditions in the US, according to immigration experts, underscoring broader trends in global migration and expatriate planning.
- The global smartphone market will contract 12.9% in 2026 to about 1.1 billion shipments due to an unprecedented memory chip shortage, reversing earlier growth forecasts, Research company IDC said yesterday. Demand for advanced memory for AI has constrained supply into 2027, forcing manufacturers to prioritise higher-end device shipments and reduce entry-level output. The shortages have emerged as a key bottleneck for the industry, delaying product rollouts and potentially weighing on industry revenue, profitability and the broader recovery cycle after recent downturns, while underscoring persistent risks in semiconductor supply that could influence component pricing and OEM inventory strategies.
- Nvidia’s latest quarterly results and upbeat revenue forecast announced on Wednesday underscored continued strength in AI demand, with the company beating expectations and projecting robust sales ahead, reinforcing the view that the AI boom remains intact. Despite the strong outlook and a sharp rise in data centre revenue, the market reaction was muted, reflecting caution over whether elevated AI investment and spending by major technology firms can be sustained over the long term. The results highlight Nvidia’s central role in AI infrastructure and are likely to shape investor expectations for semiconductor growth and broader tech sector momentum.
- Anthropic said on Thursday it will not remove safeguards from its AI models despite Pentagon threats to terminate a contract worth up to $200 million and label the firm a supply chain risk. The dispute centres on Anthropic’s refusal to allow its systems to be used for autonomous weapons or domestic surveillance, arguing that current AI is not reliable enough for such uses and raising ethical concerns. In response, Pentagon officials warned they could terminate the partnership, label the company a supply-chain risk, and potentially invoke emergency powers, a standoff that highlights tensions between national security priorities and industry calls for responsible AI deployment.
- IBM shares fell 13% on Monday, their worst single-day drop since October 2000, after Anthropic said its Claude Code tool could help modernise Cobol systems, the legacy language standardised in 1968 and widely used on IBM mainframes. The news raised investor concerns that AI coding tools could speed up migration away from mainframe software, although IBM said its platform’s value is not tied to Cobol and is based on performance and security across languages. The sell-off leaves IBM down 27% this month, putting it on track for its steepest monthly decline in decades.
- Novo Nordisk shares fell sharply this week after late-stage trial data showed its next-generation obesity drug CagriSema produced weaker weight-loss results than Eli Lilly’s Zepbound, sending Novo’s stock down 16% on Monday while Lilly’s shares rose 5% as competitive pressure in the obesity market intensified. On Wednesday, Novo announced a partnership with Vivtex to develop oral versions of biologic therapies aimed at overcoming absorption challenges associated with pill-based treatments. The stock is now down 63% over the past 12 months, and new CEO Mike Doustdar has signalled a more aggressive dealmaking strategy as analysts warn the company may struggle to regain market share amid rising competition.
- Prada has signalled early signs of a rebound in the luxury sector, helped by stabilising demand in China after a challenging 2025, with executives indicating that recent sales trends suggest the deterioration in key Asian markets may have eased and that the sector could be moving toward more sustainable growth. Analysts said the tentative improvement in Chinese consumer spending, a vital market for global luxury brands, may underpin a better performance this year, although the recovery is likely to be gradual rather than a return to the rapid expansion seen in previous cycles. The hints of stabilisation may influence investor expectations for luxury stocks and broader sector sentiment if demand continues to firm.
- As at Thursday’s close, the S&P 500 was flat for the week.
Local News
- From a Dynasty client perspective, key measures in Godongwana’s 2026 National Budget included raising the Capital Gains Tax exclusion on the sale of a primary residence to R3 million from R2 million and lifting the donations tax threshold to R150,000 from R100,000. The annual Tax-Free Savings Account limit rose to R46,000 from R36,000, while the retirement fund contribution deduction cap increased for the first time in a decade to R430,000 from R350,000. The single discretionary allowance for travel, gifts, remittances, investments, and donations was doubled to R2 million per calendar year.
- South Africa’s political landscape is showing signs of maturity as high-profile figures from outside traditional party hierarchies gain prominence ahead of elections, with opposition leader Helen Zille and billionaire businessman Patrice Motsepe both stepping into the political arena in ways that suggest a shift toward more pragmatic, service-delivery-focused politics and broader appeal beyond historic party bases. Their involvement points to a possible realignment in voter priorities and leadership choices that could influence investor confidence by highlighting evolving dynamics in South African governance and potential stability as the country navigates electoral competition and coalition politics.
- Gauteng’s provincial government faced renewed scrutiny on Tuesday as failures in water, electricity, roads and other essential services deepened across South Africa’s main economic hub. DA Gauteng leader Solly Msimanga said Premier Panyaza Lesufi has failed to govern the province and described service delivery as “on life support,” accusing the administration of offering apologies instead of solutions despite having the resources to act. While the ANC-aligned Rise Mzansi party defended Lesufi’s recovery plans, the growing political pressure has raised concerns about administrative capacity in a region that generates a significant share of national GDP and could undermine investor confidence if service delivery continues to deteriorate.
- South Africa’s power market is undergoing a structural shift as Eskom’s long-held monopoly ends and private and municipal generators enter the system, driven by policies to open the sector to competition and reduce load-shedding, according to a National Business Initiative report published on Tuesday. The transition creates opportunities for independent power producers but adds financial pressure on municipalities with weaker revenue bases, while the evolving market may accelerate investment in generation capacity and raise questions about pricing, grid management and the pace of reform needed to ensure reliable supply and investor confidence in the energy sector.
- The Pretoria High Court on Tuesday ordered a temporary halt to all ongoing litigation related to the National Health Insurance (NHI) Bill until the Constitutional Court delivers a judgment on the law’s constitutionality, pausing multiple legal challenges against the government’s flagship health reform. The interim suspension was granted after advocates argued that continuing cases could pre-empt or conflict with the Constitutional Court’s final decision, and the pause may reduce legal uncertainty for investors and healthcare stakeholders as they await clarity on how the NHI could reshape healthcare funding, access, and associated fiscal commitments.
- South Africa plans to tighten rules around crypto assets as it focuses on money moving across borders, Godongwana said in the National Budget on Wednesday. The changes will bring crypto into the country’s exchange control framework, adding to oversight already introduced by regulators. SARB has warned that fast-growing crypto use could pose financial stability risks, citing almost R63 billion in bitcoin sent abroad since 2019. Industry players say clearer rules could support growth while improving reporting and compliance.
- Standard Bank said on Tuesday that the price of gold could surpass $6,000 per ounce this year and potentially reach $7,000 next year, driven by strong market fundamentals and expected US interest-rate cuts, extending last year’s 64% rally. This surge has already produced significant windfalls for gold mining companies, with major producers such as AngloGold Ashanti, Gold Fields and Sibanye posting substantial gains in market value, boosting investor appetite for precious metals and supporting stronger valuations in mining stocks. The outlook reflects broader demand dynamics for safe-haven assets amid economic uncertainty and has implications for commodity markets and investment flows into resource sectors.
- Discovery’s share price jumped 7.6% yesterday, its biggest rise in over five years, after the group reported strong first-half operational performance, with Discovery Bank performing ahead of plan and Discovery Health delivering robust new business growth, leading the company to expect headline earnings to rise by roughly 27% to 32% and normalised profit from operations to increase by 22% to 27% for the six months to December, amid solid growth in annual premium income and wider investor confidence in its diversified financial services model.
- Virgin Active, partly owned by Christo Wiese’s Brait, is shifting its expansion focus to Europe, the UK and Australia. CEO Dean Kowarski said on Tuesday that developed markets offer stronger growth and scalability for high-end wellness clubs. The group is repositioning its 227 sites as “social wellness clubs,” integrating fitness, recovery and lifestyle spaces. Virgin Active is using AI to predict membership cancellations and reduce churn, a key profitability driver. The company recently invested R100 million in a flagship Cape Town facility positioned as a blueprint for future developments.
- As at the time of writing, the rand was 0.75% stronger against the dollar, and the ALSI was 4.2% up for the week.
Sources: Dynasty, Bloomberg, Reuters, News24, Business Day, Daily Maverick, TechCentral, ITWeb, IOL, Business Report, etc.
