South Africa’s 2024 Medium-Term Budget Policy Statement (MTBPS) has elicited a cautiously optimistic reaction from the business and investment sectors. Although concerns persist regarding sluggish economic growth and inconsistent policy execution, the measures outlined in the statement have clearly boosted market confidence, most notably demonstrated by a stronger Rand.
In a recent interview on SABC, Future Forex CEO, Harry Scherzer, offers insights into what the MTBPS signals for businesses, investors, and the broader economy. His analysis highlights early but promising signs that South Africa might be entering a more stable fiscal period.
Rand strength reflects improved investor sentiment
Following the minister’s address, the Rand strengthened significantly, briefly trading below R17/USD - its strongest level since 2022.
A major factor behind this change was the government’s decision to narrow its inflation-targeting range from 3-6% to a 3% midpoint. This change demonstrates a commitment to stricter monetary discipline.
“For investors, that’s a dream,” Scherzer says. “It means your money holds more value over time, and the market rewarded that clarity immediately.”
At the time of writing, the Rand has eased somewhat but is still notably stronger than in recent months, reflecting renewed confidence in the macroeconomic outlook.
Fiscal credibility recovering after years of pressure
The MTBPS was presented amid gradually improving international credibility. South Africa’s recent removal from the FATF grey list, followed by S&P’s first credit rating upgrade in over 16 years, has bolstered perceptions of the country’s governance and regulatory compliance.
While South Africa still sits below investment grade, the upward shift is meaningful. “It’s our first upgrade in over a decade and a half, and that really says something,” Scherzer notes.
The market’s response has been clear: favourable bond movements and Rand strength indicate that investors are reacting positively not only to the improved risk outlook but also to the government’s signals of fiscal restraint.
Cracking down on wasteful spending
A central theme of the MTBPS was expenditure discipline. Rather than raising taxes or increasing borrowing, the government emphasised cutting wasteful and inefficient spending, an approach long supported by ratings agencies and investors.
One example highlighted was the identification of 8,800 high-risk “ghost employees” within state-owned enterprises (SOEs). Addressing these irregularities could free up significant resources for productive investment.
“This frees up spending for infrastructure and growth, without worsening our debt position,” Scherzer explains. Given South Africa’s limited fiscal capacity, measures that reduce leakages without increasing the tax burden are particularly important.
Structural reforms remain the decisive factor
Despite the positive reception, sustained economic improvement depends greatly on structural reform. Scherzer stresses that progress at Eskom, PRASA, and Transnet must be prioritised, as these entities underpin the country’s logistics and energy capabilities.
Economic growth remains modest, projected at 1.2% in 2025 and rising to 1.8% in 2026 and 2027. Although well below the 4% growth required for more significant socio-economic impact, the upward trend is still encouraging.
“There’s so much room for improvement that it actually excites the business community,” Scherzer says. “We’re heading in the right direction after several years of decline.”
Business sentiment: improving but still cautious
Feedback from market participants suggests a shift from pessimism to cautious optimism. Businesses welcome signs of fiscal discipline and a stronger currency, but they remain vigilant about risks related to slow growth and uncertain implementation.
Still, many see the current environment as an opportunity.
“We’ve had a bit of a turnaround, but we’re still at a relative low,” Scherzer explains. “There’s significant upside potential for the Rand and for South Africa if reforms continue.”
What investors should watch ahead of the 2025 budget
Going into next year’s national budget, several indicators will determine whether the positive momentum is maintained:
- Implementation of spending cuts, especially initiatives to reduce wasteful expenditure.
- Debt management discipline, given South Africa’s already high debt levels.
- Operational improvements at key SOEs, particularly Eskom, PRASA, and Transnet.
- Progress in infrastructure rollout, financed by reallocated savings.
- Policy stability under the Government of National Unity (GNU) remains crucial for investor confidence.
Turning a corner: progress depends on delivery
The 2024 MTBPS is one of the most promising fiscal updates in recent years. Strength in the Rand, an improved credit outlook and commitments to spending discipline all help foster a renewed sense of market optimism.
Yet, the true measure of progress will be implementation. If the government can maintain fiscal discipline and accelerate structural reforms, especially within major SOEs, South Africa could be on track for a significant medium-term recovery.
For now, sentiment is improving, and investors appear increasingly confident that South Africa may finally be turning a corner.
