South Africa's financial position is threatened by the oil shock in the Middle East, weakening economic growth, and rising expenditure pressures, despite higher tax revenues. These factors create serious difficulties for the Ministry of Finance ahead of the mini-budget publication on Wednesday.
Economist from Anchor Capital, Dr Lerato Ntuli, warned that Finance Minister Enoch Godongwana faces a much more complex economic environment than when presenting the budget in February, even though government revenues exceeded expectations.
The Medium Term Budget Policy Statement (MTBPS), scheduled for October 21, comes against the backdrop of rising global oil prices, which increases costs for transport, production, and households. Furthermore, tighter monetary policy is intensifying pressure on an already struggling economy.
Ntuli noted that the main task will be to account for the economic consequences of the energy shock without undermining debt stabilization progress or jeopardizing confidence in the fiscal system.
No respite
According to data from the International Monetary Fund (IMF) and Anchor Capital, the average oil price is expected to reach around $96 per barrel in 2026, approximately 41% higher than in 2025. The IMF also forecasts a slowdown in global growth to 3.1% this year compared to 3.5% in 2025, with inflation projected to reach 4.7%.
For South Africa, which relies on oil imports, the consequences go beyond just higher fuel prices. Ntuli warned that increased costs for logistics, transportation, and production could reduce corporate profits, hinder hiring and investment, and decrease household purchasing power.
These problems arise as the domestic economy is already losing momentum. Real GDP contracted by 0.2% in the second quarter of 2026, ending a six-quarter period of growth. Annual economic growth slowed to 0.9% from 1.9% in the first quarter. Inflation has also become less favorable: in August, it rose to 4.4% from 4.3% in July. The South African Reserve Bank raised the repo rate by 25 basis points to 7.25% in September, increasing borrowing costs for businesses and households.
Not all bad news
Nevertheless, the Ministry of Finance begins the MTBPS with some encouraging revenue figures. Anchor Capital reported that the fiscal deficit in August was R29 billion, the lowest figure for that month in eight years, and the primary budget surplus increased to approximately 1.4% of GDP.
Corporate income tax collection rose by 18.5% year-on-year in August, and over 20% for the financial year to date. Domestic VAT receipts were also higher than expected, increasing by approximately 8% compared to the February projection of 4.5%.
However, Ntuli cautioned that this improvement may be unsustainable. She noted that personal income tax receipts are partly due to lower-than-expected refunds, despite slower wage growth. Similarly, VAT receipts were supported by a slowdown in refund payouts.
Ntuli added that the fuel levy collection is already showing the impact of government measures to protect drivers from price hikes. In August, the levy was about 15% lower year-on-year, reflecting the easing of the fuel levy and reduced demand.
Under pressure
Meanwhile, Ntuli pointed out that expenditure pressure is growing at national and provincial levels, especially in service delivery sectors. Although debt servicing costs rose slower than anticipated, Ntuli warned that prolonged global uncertainty and higher interest rates could reverse this trend.
She stated: 'Most of the revenue overshoot appears cyclical, not structural, while spending is rising.'
Anchor Capital expects the Ministry of Finance to lower its growth forecasts, acknowledge higher inflation risks, and adopt a more cautious fiscal stance than presented in February.
Ntuli demanded greater clarity regarding the government's proposed fiscal anchor, including measurable debt or expenditure targets, mechanisms to ensure compliance, and a legislative timeline. Furthermore, she insists on an explanation of how any successor to the social grant will be funded if it expires in March 2027. She stressed that any measures to support households and businesses against rising fuel and living costs must be temporary, targeted, and fully funded.
Ntuli concluded: 'Temporary supply shocks should not lead to permanent increases in spending or weaken the fiscal position.'
Accelerate reforms
Other priorities include updating state-owned enterprise financial risk assessments, reliably determining the cost of National Health Insurance, and protecting infrastructure investments. Ntuli also called for accelerating reforms in railways, electricity, regulation, and visa regimes to support economic growth.
In turn, PSG senior economist Johann Els expects stronger revenue inflows to improve the fiscal outlook, potentially bringing a tax windfall of R50 billion or more. He believes the deficit could shrink to around 3.5% of GDP in the current fiscal year compared to the February forecast of 4%.
However, Investec chief economist Annabel Bishop warned that spending is already exceeding budget targets for the current period, with a preliminary deficit of R189 billion for the first five months of 2026/27. Bishop forecasts that the full-year deficit will remain around 4% of GDP, with a risk of reaching 4.1% if overspending continues.
For Ntuli, the priority is ensuring that temporary revenues strengthen public finances rather than funding obligations the government cannot meet. She stated: 'The MTBPS must use the current revenue surplus to strengthen public finances, not to create space for unfunded expenditure commitments.'
