Duncan Pieterse Says South Africa On Track To Meet Fiscal Targets Despite Middle East Conflict

Despite heightened economic uncertainty stemming from the recent conflict in the Middle East, National Treasury Director-General Duncan Pieterse says the country remains on track to meet its fiscal targets.

Speaking at the Citi Emerging Markets Macro and Credit Conference, Pieterse highlighted a third consecutive primary budget surplus as evidence that fiscal consolidation efforts and structural reforms are continuing to gain traction.

“The true test of fiscal credibility is to deliver on our fiscal objectives through the cycle, including in times of stress,” Pieterse said.

His comments come after the escalation in conflict in the Middle East three days after Finance Minister Enoch Godongwana tabled the national Budget, triggering concerns about rising energy prices and their impact on South Africa’s economy and public finances.

Pieterse said recent assessments by major credit-rating agencies had reinforced confidence in South Africa’s fiscal trajectory.

Moody’s recently revised South Africa’s outlook to positive, while S&P Global Ratings reaffirmed its positive outlook after upgrading the country’s sovereign rating in November 2025.

Debt burden declines

According to Pieterse, both agencies expect South Africa’s debt burden to decline over the next three years while structural reforms continue to support economic growth.

He noted that South Africa is currently the only G20 country with a positive outlook from Moody’s and one of only two G20 countries with a positive outlook from S&P.

Treasury reported stronger-than-expected fiscal outcomes for the 2025/26 financial year. The primary surplus reached 1.1% of GDP, exceeding the Budget estimate of 0.9%, while the main budget deficit narrowed to 4.3% of GDP compared with the projected 4.6%.

Government debt is expected to decline over the medium term, while the main budget deficit is forecast to fall to 3.1% by 2029.

Fiscal pressures ease

Pieterse said government would introduce a formal fiscal rule during the Medium-Term Budget Policy Statement in October to reinforce its debt reduction and primary surplus objectives.

In response to rising fuel prices linked to the Middle East conflict, government introduced temporary fuel-levy relief from April to June at a cost of R17.2bn.

Pieterse said the measure would be funded from fiscal outperformance recorded in the previous financial year and would therefore be fiscally neutral.

He added that any additional relief measures would be accommodated within existing departmental budgets.

Treasury also reported continued revenue strength at the start of the new financial year. Tax collections in April exceeded Budget forecasts by R5.9bn, representing annual growth of 10.1%.

Public finances improve

Pieterse said government spending remained largely insulated from inflationary pressures, with the public-sector wage agreement fixed until the 2027/28 financial year.

Social-grant spending is also expected to come in around R2bn below projections due to improved beneficiary verification processes.

He said debt dynamics had improved significantly, with government debt expected to peak in 2025/26 before declining to 76.5% of GDP by 2028/29.

South Africa’s borrowing costs have also fallen. Pieterse said domestic government bond yields had declined by an average of 240 basis points between the 2025 and 2026 Budgets, while five-year Eurobond spreads narrowed from 170 basis points before the Middle East conflict to 106 basis points currently.

On state-owned enterprises, Pieterse said Eskom was on track to record its second consecutive year of profitability after posting a R16bn profit in 2025 and R24.3bn in the first half of 2026.

He attributed the turnaround to operational improvements, higher tariffs and conditions attached to government debt relief.

South Africa has now gone more than 365 days without load shedding, he said.

Transnet remains loss-making but has shown signs of recovery, with freight volumes increasing and losses narrowing. Pieterse said no equity injection would be required for the logistics company as existing guarantees adequately cover its financing needs.

Turning to the broader economy, Pieterse said South Africa’s medium-term growth outlook had improved as structural reforms gained momentum.

Economic growth accelerated during the second half of 2025, with GDP expanding by 1.1% for the year, double the growth rate recorded in 2024. The February Budget projected growth rising to 2% by 2028.

Fixed investment has also begun to recover, with two consecutive quarters of growth recorded during 2025 after an extended period of contraction.

Agricultural exports increased by 11% in the first quarter of 2026 compared with the same period a year earlier, supported by higher export volumes and improved prices.

Pieterse acknowledged that the Middle East conflict had increased concerns about fertiliser supply and prices, but said South Africa was unlikely to face shortages because it could diversify import sources.

He highlighted progress in energy reform, noting that the National Energy Regulator of South Africa (Nersa) has registered more than 19 gigawatts of new generation capacity.

The National Transmission Company of South Africa has a further 24 gigawatts of projects seeking grid connections over the next six years.

Government is also advancing plans to establish an independent transmission system operator and implement a wholesale electricity market.

In the logistics sector, Pieterse said private-sector participation was expanding.

The 25-year concession for Durban Container Terminal Pier 2 became operational in January, while 11 train-operating companies have been selected to operate on 41 routes across six freight corridors.

He said government infrastructure spending would grow by nearly 10% annually over the medium term, making it the fastest-growing area of expenditure.

Major investments are planned for passenger rail, including R23.1bn for signalling systems, R7.4bn for operational support and R5.7bn for rolling stock.

Infrastructure spending accelerates

Treasury has also approved R104bn in infrastructure projects through the Budget Facility for Infrastructure and raised R11.8bn through its first infrastructure bond issued in December 2025.

Pieterse said municipal reform would be another key focus area ahead of local government elections in November. Treasury has launched a Metro Trading Services Reform programme backed by R54bn over the medium term to improve municipal finances and infrastructure investment.

Pieterse said government remained committed to reducing debt and strengthening economic growth despite global uncertainty.

“We are not yet where we want to be and more work lies ahead, especially in the current global environment. But we are on track to get there,” he said.