Godongwana Cuts Inflation Target to 3% in 2025 Medium-Term Budget

Godongwana Cuts Inflation Target to 3% in 2025 Medium-Term Budget

CAPE TOWN, 12 November 2025. Finance Minister Enoch Godongwana presented the 2025 Medium-Term Budget Policy Statement (MTBPS) to Parliament on Wednesday, announcing that South Africa would lower its headline inflation target to 3% with a one percentage-point tolerance band, the first revision to the target in 25 years, and revising the near-term growth forecast down to 1.2% from the 1.4% projected in the February 2025 Budget.

The reduction in the inflation target, which will be phased in over two years, aligns South Africa's monetary policy anchor with international norms and is intended to reduce inflation expectations embedded in wage and price-setting behaviour. The South African Reserve Bank, which sets monetary policy independently, has operated with a 3%-6% target band since 2000.

Godongwana said the consolidated budget deficit is projected to narrow from 4.7% of GDP in 2025/26 to 2.9% of GDP by 2028/29. Government debt is expected to stabilise at 77.9% of GDP over the medium term, the first time since the 2008 global financial crisis that the debt-to-GDP ratio is not expected to rise. Debt-service costs are forecast to grow at 3.8% annually over the period, compared with the 7.4% growth rate projected in the February budget.

On revenue, the National Treasury revised gross tax revenue upward by R19.7 billion for 2025/26, primarily reflecting stronger VAT collections and improved enforcement. However, Treasury cautioned that revenues are expected to fall approximately R15.7 billion below 2025 Budget estimates over the following two fiscal years, reflecting the moderated growth outlook.

Real GDP growth is projected to accelerate gradually to 1.8% annually between 2026 and 2028, contingent on continued structural reforms, including in energy, logistics, and the broader regulatory environment.

Opposition parties and business groups responded with mixed assessments. The Democratic Alliance welcomed the inflation target revision but argued that the fiscal consolidation path remained too gradual to address South Africa's elevated debt levels. Business Unity South Africa called the MTBPS broadly credible, while noting that the downward growth revision reflected ongoing structural constraints.

The MTBPS serves as a mid-year fiscal update and policy framework, bridging the February main budget and the following year's proposals. It does not introduce new tax measures but sets the direction for expenditure and revenue planning.