South Africa

Government debt is estimated to have slightly increased in 2025 to 78%, and it is projected to stay stable through 2027. However, the ratio has significantly increased from the 2011-19 average of 45%, which has impacted yields and its debt sustainability. Debt service is expected to total around 18% of total government revenues, above the levels seen in other emerging markets and other African economies. Yet 90% of total debt is domestic and held in Rand.

The primary balance is expected to be 1.5% in 2026, and to further improve into 2027 to 2.3%. The overall balance is expected to slightly decrease towards -5.6%, demonstrating the high burden of interest payments. After a showdown between government partners, the GNU coalition passed an orderly increase of VAT through the budget as a way to increase revenues.  
 
The South African rand rallied in 2025 on the back of gold prices and other precious metals such as silver, among South Africa’s major exports and the main hard currency revenue stream. The ZAR appreciated 11% against the USD and 3% against the euro. International reserves followed a similar path, likely to have reached around 6.7 months of imports in 2025.

The Government of National Unity has held up since taking shape in June 2024. While being marked by deep divisions, particularly over fiscal policy (such as VAT increases), ideological differences and foreign policy disputes, the government has so far been able to reach consensus. The population clearly supports the wider government consensus. While the GNU’s durability remains uncertain, with risks including internal ANC factionalism, policy deadlock and eroding public confidence in democratic institutions, it seems to be holding on, at least until the municipal elections to take place in the fall of 2026, which could be a major support indicator. 

South Africa’s external sector holds significant potential for delivering outstanding results but it also faces many challenges. As it is a top exporter of highly valued minerals to Asia and Europe, improving South Africa’s infrastructure could increase capacity and profitability. In addition, as a relevant exporter of cars to developed markets, mainly Germany – thanks to the numerous factories of German auto manufacturers – South Africa enjoys important skilled labor that could be expanded to new auto power houses such as China. However, it also faces the systemic troubles of Germany’s industry. Finally, South Africa’s value chains are well integrated into the rest of the African continent. With the newly agreed Africa-wide trade agreement, South Africa’s role in the region could significantly increase. 
 
The geopolitical context in the Middle East has presented South Africa with an opportunity to become a focal point for global trade as traffic through the Suez Canal has been disrupted. The Cape of Good Hope has emerged as the primary maritime connection between Europe and Asia, leading to a +328% increase in containership arrivals at South African ports since December 2023. This surge in port traffic has also boosted port revenues. Implementing trade facilitation measures, such as improving port operations and cargo handling, could transform South Africa's ports into major logistic hubs connecting Asia, Europe and Latin America.