South Africa remains on track to meet its fiscal targets despite the conflict in the Middle East, its National Treasury said on Tuesday, adding that it wanted to demonstrate its credibility by achieving its objectives even during times of stress.
Speaking at a Citi emerging markets conference, Treasury Director-General Duncan Pieterse outlined several reasons why the Iran war will not derail the country’s fiscal trajectory, noting that recent fiscal outcomes have beaten forecasts.
South Africa achieved a third consecutive primary surplus for the fiscal year ending in March, reaching 1.1% of gross domestic product (GDP) against a budget estimate of 0.9%. This previous fiscal outperformance is being used to fund relief measures rolled out in response to the Iran war, ensuring they are fiscally neutral. Specifically, fuel levy relief spanning from April to June will cost 17.2 billion rand ($1.06 billion).
Pieterse stated that the country had near-term buffers in place before the war, including improving economic growth, a balanced current account, a solid footing for the rand, and compressed bond yields.
South Africa government expenditure is also largely insulated from higher inflation. While the public sector wage bill accounts for almost one-third of spending over the medium term, the Treasury noted that a wage deal is securely in place until the 2027/28 fiscal year.
Additionally, debt dynamics have structurally improved. The Treasury expects debt to have peaked in 2025/26 and projects it will decrease to 76.5% of GDP by 2028/29.
The finances of state-owned companies are also turning around, which Pieterse said reduces the risk of further calls for fiscal support. Power utility Eskom, historically one of the biggest drains on state finances, is on course for its second consecutive full-year profit and last implemented electricity blackouts over a year ago.
