International credit ratings agency Fitch Ratings has reaffirmed its June projections for South Africa’s public finances after reviewing last week’s Medium-Term Budget Policy Statement, maintaining that weak economic growth will cause government debt to rise again in the coming years. The assessment reinforces the central argument made by this newspaper last week that stronger economic growth, rather than increasing the tax burden, is the key to placing South Africa’s public finances on a sustainable footing.

On Monday, Fitch said the government’s latest fiscal projections were broadly consistent with the assumptions underpinning its June decision to upgrade South Africa’s sovereign credit rating from BB- to BB, two notches below investment grade, with a stable outlook. The agency has therefore made no significant changes to its earlier estimates, which anticipated that government debt would stabilise before rising modestly again.

Fitch expects South Africa’s economy to grow by just 1.1% in 2026, 1.4% in 2027, and 1.5% in 2028. The National Treasury forecasts growth of 1.2%, 1.6%, and 1.8% over the same period, having already revised its expectations downwards in October.

The chart below sets out this data.

These differences in growth expectations have important consequences for the country’s public finances. Fitch expects a budget deficit of 4.1% of GDP in the fiscal year ending March 2027, 3.9% in 2028, and 3.8% in 2029. The National Treasury, by contrast, expects the deficit to narrow to 3.9% in 2027, 3.5% in 2028, and 2.9% in 2029. Fitch attributes its less optimistic deficit projections primarily to weaker nominal economic growth, which limits the government’s ability to reduce its deficit relative to the size of the economy.

The chart below sets out this data.

Fitch expects government debt to stabilise at approximately 78.0% of GDP in the fiscal years ending March 2027 and 2028, before increasing to 79.0% in 2029. The National Treasury forecasts debt of 78.2% in 2027, 77.9% in 2028, and 77.5% in 2029.

The chart below sets out this data.

The importance of economic growth to South Africa’s fiscal outlook was the central argument advanced by The Common Sense in its analysis of the Medium-Term Budget last Thursday. The newspaper argued that the National Treasury’s improved headline debt and deficit numbers concealed an increase in the proportion of national output being absorbed by government revenue and expenditure, even as the country’s economic growth outlook was being revised downwards.

The newspaper argued that South Africa had already moved well beyond the point of diminishing returns from increasing government revenue to finance higher expenditure. With economic growth running at little more than 1.0%, extracting an ever-greater share of national income to fund government spending risks further undermining the private investment and economic activity on which future tax revenues depend. The result is a fiscal strategy that may improve the deficit in the short term while weakening the economic foundations needed to sustain that improvement.

Fitch’s October assessment does not represent a deterioration in its outlook since June, but rather confirms that the government’s latest budget has done little to change its underlying expectations. While the agency remains broadly satisfied with South Africa’s fiscal management, its forecasts suggest that a further improvement in the country’s credit rating, and ultimately a return to investment grade, may remain out of reach until the economic growth outlook improves past an average growth level of 1.0%.