Oil shock and weak growth put South Africa’s finances under pressure ahead of MTBPS

Opening pressure points: oil, growth and borrowing costs

Anchor Capital economist Dr Lerato Ntuli told analysts that the fiscal environment facing the minister is significantly tougher than when the February Budget was presented, despite revenue outperformance. The MTBPS will arrive against a backdrop of a Middle East-driven oil shock that is feeding into transport, production and household costs, at the same time as the domestic economy is losing momentum.

Anchor Capital cites the International Monetary Fund forecast that oil prices are expected to average around $96 a barrel in 2026, about 41% higher than in 2025. The IMF also projects global growth to slow to 3.1% this year from 3.5% in 2025 and forecasts inflation of 4.7%. For an economy that imports oil, these global shifts have direct implications for fuel bills, logistics and production costs.

Domestic economic indicators

South Africa’s domestic data underline the concern. Real GDP contracted by 0.2% in the second quarter of 2026, ending six consecutive quarters of growth, while annual growth slowed to 0.9% from 1.9% in the first quarter. Inflation has also become less favourable, with the headline rate rising to 4.4% in August from 4.3% in July.

The South African Reserve Bank raised the repo rate by 25 basis points to 7.25% in September, a move that adds to borrowing costs for consumers and businesses and compounds the strain on an economy already under pressure.

Where the fiscal picture brightens and why it may not last

Treasury enters the MTBPS with several encouraging revenue indicators. Anchor Capital notes that August’s R29 billion fiscal deficit was the smallest recorded for that month in eight years, and the primary budget surplus has strengthened to around 1.4% of GDP.

Tax collections have outperformed in key areas: corporate income tax collections rose 18.5% year-on-year in August and by more than 20% in the financial year to date, while domestic VAT receipts rose about 8%, ahead of the February Budget assumption of 4.5%.

But Ntuli cautions that much of this improvement appears cyclical rather than structural. She highlighted that personal income tax collections have been supported in part by lower-than-expected refunds despite weaker earnings growth, and that VAT gains have likewise benefited from slower refund payments. The fuel levy is already showing the effects of government relief measures, with collections approximately 15% lower year-on-year in August, reflecting levy relief and weaker fuel demand.

“The challenge will be to accommodate the economic consequences of the energy shock without undermining progress towards debt stabilisation or compromising the credibility of the fiscal framework.”

Spending pressures and fiscal risks

At the same time as revenue has surprised on the upside, spending pressures are mounting at national and provincial levels, particularly in service-delivery areas. Anchor Capital notes that although debt-service costs have risen more slowly than expected to date, prolonged global uncertainty and higher interest rates could reverse that trend.

Analysts expect Treasury to adopt a more cautious fiscal stance in the MTBPS. Anchor Capital anticipates lower growth forecasts, acknowledgment of higher inflation risks and tighter fiscal messaging than in February.

Analysts’ projections and warnings

• PSG senior economist Johann Els expects stronger revenues could amount to a tax windfall of R50 billion or more, potentially narrowing the deficit to around 3.5% of GDP this year compared with the 4% projected in February.
• Investec chief economist Annabel Bishop warns that spending is already running ahead of the year-to-date budget benchmark, with a preliminary deficit of R189 billion over the first five months of 2026/27. She expects the full-year deficit to remain around 4% of GDP, with a risk of reaching 4.1% if expenditure overruns continue.

What analysts want to see in the MTBPS

Ntuli has called on Treasury to provide clearer choices and guardrails. Her requests for the MTBPS include:

• Greater clarity on a fiscal anchor including measurable debt or expenditure targets, enforcement mechanisms and a legislative timeline.
• An explanation of how any successor to the Social Relief of Distress grant, which is due to expire in March 2027, would be funded.
• Confirmation that any measures to cushion households and firms from higher fuel and living costs will be temporary, targeted and fully funded.
• Updated assessments of financial risks at state-owned entities, credible costing for National Health Insurance and protection of infrastructure investment.
• Faster structural reforms in rail, electricity, regulation and visa policy to support growth.

“Temporary supply shocks should not lead to permanent increases in expenditure or weaken the fiscal position.”

Why the MTBPS matters for households and markets

The MTBPS will set the tone for how government balances short-term pressures against medium-term fiscal sustainability. For households and businesses the immediate concerns are higher fuel and living costs, tighter borrowing conditions following monetary policy moves, and uncertainty about the duration and funding of social relief measures. For markets, clarity on debt targets, spending control and the treatment of state-owned entity risks will be central to perceptions of fiscal credibility.

With the MTBPS due on 21 October and a mini-budget presentation expected on Wednesday, the coming days will show whether temporary revenue gains are channelled into strengthening public finances or whether they create space for additional spending that may not be sustainable.