The overall welcome impact of the 2026 Budget, introduced in Parliament on 25 February, on the economy will be positive and confidence-building. The markets will also price in what is a “good news” Budget in favourable fiscal circumstances.
Prof. Raymond Parsons, economist from the North-West University (NWU) Business School, says Finance Minister Enoch Godongwana has displayed a credible pair of hands in playing well the better economic cards he now holds to address the inevitable competing demands on South Africa’s still limited public finances.
“While global factors still pose a risk, South Africa’s terms of trade have improved as a result of the commodity price boom. The Budget strategy now offers a more stable macro-background, with the prospect of further interest rate cuts this year, and possible sovereign credit rating upgrades over the next couple of years.”
According to Prof. Parsons, business and consumer confidence should also gain from the Budget relief on bracket creep and medical aid credits. He says the major advantage of building confidence in fiscal sustainability through the commitment of the Budget to higher inclusive growth is not only that it strengthens resilience, but also makes other aims – such as job creation and a bigger tax base – easier to attain.
“Rapid growth is the only path, said Finance Minister Enoch Godongwana. South Africa therefore now needs to shake off the chains of a low-growth economy. The present economic recovery is still modest and uneven.”
Prof. Parsons explains that the economy is not yet on autopilot and disappointed expectations can still easily become self-fulfilling. Much higher levels of fixed capital formation are now needed if the modest near-term average growth of 1,8% projected by the Budget is to surprise on the upside and eventually meet the gross domestic product growth target of 3,5% of the Government of National Unity by 2030.
“Post-Budget, a litmus test will therefore be whether a sufficient number of companies now feel that the policy environment and growth prospects justify their making fresh plans for expansion. The VAT assistance to SMMEs is welcome. President Cyril Ramaphosa’s next Investment Conference in March must be another platform to help do so.”
Prof. Parsons says that, once again, the challenge remains to ensure that growth-friendly policy and project commitments are translated into reality in ways that underpin long-term investor confidence and make a tangible difference in effective delivery.
“The slow pace of structural reforms, high crime levels and widespread corruption are therefore key constraints to be tackled further successfully. Procrastination, weak state capacity and corruption have been widely identified as enemies of delivery. The emphasis placed in the Budget Speech on mechanisms such as Operation Vulindlela and enhancing the role of the private sector remains essential for strengthening South Africa’s future economic performance,” he concludes.
