South Africa’s fiscal deficit is set to widen to 6.4% of GDP in 2025, up from 5.7% in 2024. This is according to a new note from the World Bank. The increase is driven by higher wage costs and interest payments, while public debt has already reached 77% of GDP in 2024.

The World Bank projects headline inflation to ease to 3.5% in 2025, thanks to lower oil prices, stable food costs, and a stronger rand; down from 4.4% in 2024. This more favourable price environment has enabled the central bank to cut interest rates by a cumulative 125 basis points since September last year.

The current account deficit is expected to rise slightly to 1.1% of GDP in 2025 as lower metal prices and reduced exports are only partially offset by high gold prices and falling oil imports.

Looking ahead, the World Bank forecasts South Africa’s economy will expand by just 0.9% in 2025, averaging 1.2% growth over the medium term, a pace it says is: “insufficient to boost employment and improve socio-economic outcomes.” The report notes that while structural reforms are crucial, the Government of National Unity continues to face challenges building consensus around key measures.

The deficit is projected to narrow to 5.5% of GDP in 2026 as Eskom debt relief ends and fiscal reforms begin to take hold, but public debt is still expected to climb to 79.7% of GDP in 2027 before stabilising.