Some economists have berated the 2026 budget, labelling it a plan that overpromises but is set to underdeliver.
Their criticism comes after National Treasury projected a higher gross domestic product growth in the coming years, as well as director-general Duncan Pieterse’s statement that sovereign debt as a share of GDP and debt service costs will decline in the coming years, while also stating that the government was raking in more debt to take advantage of favourable market rates, a position one economist said was
contradictory.
This comes as the country spends about 20% of its revenue to service debt, which is the government’s single biggest expenditure item.
Two economists who spoke to Sunday World rejected National Treasury’s assertion that the budget represented “a fiscal turning point”, arguing that at R6.1-trillion, or 78.9% of GDP, government debt is still way too high.
Economist Duma Gqubule said he could not understand Pieterse’s logic.
“You are incurring foreign currency debt because it’s cheap, which I think is a bad idea because foreign currency debt compromises our monetary sovereignty due to risks of exchange rate fluctuations, which can cause instability for a country. When it is domestic debt, it’s more
manageable.”
He said the budget provides proof that the economy has not turned the corner.
Gqubule also dismissed Treasury’s argument that it will stabilise government debt.
“Every budget since 2012, they said they would stabilise debt within two or three years, but every year since then, they have missed their targets. In 2023, they said debt would stabilise at 73.6% this year. In 2024, they said it would stabilise at 75.3% this year. In 2025 they said it would stabilise at 76.2%.”
Economist Mandla Maleka said though the budget presentation was sound, granular details immediately indicate a stretched budget that celebrates achieving a nearly 79% debt to GDP ratio as stabilisation.
“What’s hidden is that debt-service costs come from constrained revenues. Servicing debt doesn’t come from GDP, well, not directly, but from the revenue pool.
“Any revenues that commit 20% of collection to servicing debt shouldn’t be celebrated but decried as capital displacement.
He said for South Africa to reduce debt to a sustainable level of below 30% of GDP would mean no material borrowing over the next 20 years.
“That’s an impossibility.”
Carbon tax showdown could cost SA billions in investment, tax revenue
South Africa’s carbon tax is under renewed threat as government weighs whether to suspend the tax temporarily, delay the implementation of its stricter second phase, or revise its structure. This sparked warnings from academics and civil society that weakening the tax could undermine economic competitiveness, environmental protection and billions of rands in future growth.
The debate intensified after reports that electricity and energy minister Kgosientsho Ramokgopa is considering suspending the tax following pressure from fossil fuel interests. The debate comes as National Treasury prepares for the second phase of the carbon tax implementation, due for an increase this year.
Shareholder advocacy organisation, Just Share, and the University of Cape Town (UCT) argue such a move would be “short-sighted” and driven by narrow industrial interests rather than economic priorities.
The Department of Electricity and Energy has argued that any changes to carbon tax policy would aim to balance decarbonisation with economic stability, particularly in energy-intensive sectors critical to growth and employment.
At its core, the carbon tax is based on the “polluter pays” principle, which increases the cost of carbon-intensive activities to incentivise emissions reductions and shift investment toward cleaner technologies.
When it was introduced in June 2019, companies were charged R120 per tonne of carbon dioxide emissions, although tax allowances reduced effective rates for many emitters to between R6 and R48 per tonne.
Despite its relatively low effective rate, the tax generates approximately R1.5-billion annually. The government aims to recycle this tax revenue to help offset the unequal impacts of climate change.
Hlumelo Bikweni, executive director at Just Share, warned that suspending the carbon tax would shift the burden of climate damage onto ordinary citizens. “The carbon tax is not a punishment. It is a mechanism to ensure that companies account for the real cost of pollution. Removing it effectively subsidises pollution using public resources,” he said.
Sustained lobbying by major emitters, such as Sasol and Eskom, which account for most of South Africa’s emissions, have successfully secured concessions and exemptions. In Eskom’s case, its carbon tax liability has been largely offset by existing electricity levies and renewable energy mechanisms, meaning electricity tariffs have not yet reflected the tax’s cost.
Major carbon emitters have argued that carbon tax increases could raise costs and threaten investment in energy-intensive sectors such as mining, chemicals and manufacturing, which remain central to South Africa’s economy and employment.
Meanwhile, senior climate and energy researchers at UCT, including Britta Rennkamp, Andrew Marquard, Mark New and several others, warn that failing to reduce emissions could cut gross domestic product by up to 3.6% annually compared with a lower-warming scenario. Over the next 35 years, climate-related economic damage could cost the country R259-billion without mitigation policies.
UCT also warns that South African exporters could face rising costs under international carbon pricing regimes, particularly the EU’s Carbon Border Adjustment Mechanism, which taxes imported goods based on their carbon intensity.
South Africa exported more than R200-billion worth of goods to the EU in 2024, including steel, aluminium, cement and chemicals, which all fall under the EU’s carbon border tax. Without domestic carbon tax, these exporters risk paying billions of rands in carbon tariffs to Europe instead of investing those funds into South Africa’s Just Energy Transition.
Over R220-billion in concessional climate finance, including funding under the Just Energy Transition Partnership, are contingent on the country maintaining credible emissions reduction policies. – ESG Now
Pension funds inject R1bn into renewable energy
South Africans’ retirement savings are increasingly funding the country’s electricity system, after institutional investors committed R1-billion to expand ownership of renewable energy infrastructure feeding power into the national grid.
Alexforbes Investments has committed R500-million to the Revego Africa Energy Fund, matched by another R500-million from British International Investment, the UK government’s development finance institution.
The investment comes through the Alexforbes Infrastructure Impact Fund-of-Funds, which targets a total of R5-billion for deployment across renewable energy, transport, and essential infrastructure.
South Africa requires more than R1-trillion in energy infrastructure investment over the next decade to stabilise and modernise its power system, according to the Just Energy Transition Investment Plan
With Eskom’s debt burden exceeding R400 -billion and public finances under strain, private and pension-backed capital is increasingly becoming the primary engine for funding new electricity capacity.
Alexforbes is one of South Africa’s largest retirement fund managers, overseeing more than R600-billion in assets on behalf of pension funds, institutional investors, and retirement schemes.
This investment means millions of South African workers are now indirectly financing renewable energy generation through their retirement savings.
Revego already owns stakes in renewable energy projects with a combined generation capacity of 806MW, producing approximately 2.3 terawatt-hours of electricity annually. This is enough to power between 500 000 and 700 000 South African households.
As of January 3, 2023, South Africa’s Regulation 28 of the Pension Funds Act has been updated to encourage investment in infrastructure, including renewable energy projects, while maintaining prudential safeguards.
Large retirement fund managers such as Alexforbes typically allocate capital conservatively, by prioritising assets with predictable income and low default risk.
Their entry into renewable infrastructure signals growing investor confidence in the long-term financial viability of South Africa’s independent power sector.
Revego is majority black-owned and managed. Alexforbes’ investment enables greater participation of black-owned investment firms in strategic infrastructure ownership, historically dominated by state and multinational entities.
Other major investors in Revego include Investec Bank, Eskom Pension and Provident Fund, and UK Climate Investments. – ESG Now
