Kathy Gibson reports – Big changes to the world order are driving global uncertainty – and South Africa must decide now how to position itself in this changing environment.
This is the stark advice from Lullu Krugel, chief economist and sustainability leader at PwC, speaking at Budget 2026 preview this morning.
The World Economic Forum tells us we have entered the age of competition where global risks continue to spiral in scale, interconnectivity and velocity.
“This confrontation is complicating collaboration,” Krugel says. “And trust – the currency of co-operation – is losing its value.”
Globally, the mood is mostly unsettled, turbulent and stormy. Just 9% of people feel stable and 1% feel calm. “So there is uncertainty – there are no surprises there.”
PwC megatrends point to global geopolitical fracturing as the top risk facing countries and businesses, having moved up from number 19 last year.
What is noticeable, says Krugel, is that the long-term risks like climate change and extreme weather have moved further down the ranking. “This is not because they are less important, but because the short-term issues are taking up all of our head space.
“When clients are planning they have a short horizon, they need to move tactically and respond quickly.
“We have to react and respond to the immediate issues. But we also have to keep an eye on those things that will be important in five or 10 years’ time,” she adds.
Importantly, she believes the new world order is here to stay and we must learn to adjust.
One of South Africa’s biggest challenges is geoeconomic confrontation. “As a country we like to see ourselves as unaligned,” Krugel points out.
But, in a world where the geopolitical alliances have broken up, this could place us in the precarious position of not being aligned to certain powers.
And this, in turn, has had a massive impact in things like the highest tariffs in sub-Saharan Africa
“That sounds negative, but what is important is how we position ourselves,” Krugel says.
A potential positive of the African Continental Free Trade Agreement (AfCFTA). “We need to understand how to get into it, and position ourselves.
“What we are seeing globally is the shift from globalisation to multipolarity – smaller groups of country working together to come up with solutions.”
Current trade pressures constrain the fiscal space, but Krugel believes South Africa needs to continue building its relationships in Europe and using its relationship with China to balance it out. At the same time, we should be looking to deepen alliances with countries in the Middle East, particularly in the services sector.
“There is a window of opportunity that we need to use,” she says.
There are several positives that the country can capitalise on, Krugel adds.
Loadshedding, which impacted private sector investment for many years, appears to be a thing of the past. “Hopefully we are starting to see investmen playing our in industry numbers.”
Other positive signs are the country’s first ratings upgrade from Standard & Poors in the two decades; a primary budget surplus for two consecutive years; inflation that is well under control; real wage growth that is outpacing inflation; and FATF greylisting removal.
“These are green shoots with deep roots, along with structural reforms.”
There are, however, still some challenges: GDP forecasts are well below the 3% needed to dent unemployment; unemployment is at 32% (43% expanded); municipal infrastructure is failing, and logistic bottlenecks are still a reality despite improvements.
Importantly, R1,8-billion of corporate cash is still uninvested as companies wait for reform certainty.
PwC’s CEO survey found that few companies are gearing for growth this year, mostly because of the prevailing uncertainty.
On the macroeconomic front, PwC expects to see real GDP growth increasing to 2% by 2028. In the same period, the fiscal deficit is forecast to decrease from -4,6% in 2025 to -3,9% in 2028.
While the rand was more positive in 2025, it is expected to depreciate slightly to between R16.5 and R17.00 this year, drifting to between R18.00 and R18.50 by 2028.
Inflation continued lower in 2025, and is expected to hold near 3,5% to 2028.
During the forecast period, the repo rate is expected to edge down from the mid-6% range to high-5% by 2028.
“The bottom line is that the rules have changed,” Krugel says. “And South Africa is better positioned than it has been in years.”
She says two factors will shape the country’s next two decades: whether we position ourselves as the gateway to Africa; and how we manage critical minerals and market access.
“The history is clear: the economies that thrive in the next decade will be those that treated 2025/6 as a decision point, not a waiting room,” Krugel says. “Now is the time to decide how to grow.”
Expenditure pressures
While constraints on economic growth and the revenue outlook continue, spending reallocation should be prioritised.
Budget 2025 highlighted a shift from consumption spending to capital investment, with capital payments projected to rise 7,5% annually, which is the fastest-growing expenditure item.
The USAID funding termination (affecting approximately 40 health projects and 8 500 PEPFAR-funded staff) creates a funding gap that will require fiscal accommodation or domestic resource mobilisation.
The Social Relief Distress (SRD) grant extension to 2027 adds approximately R36-billion to 38-billion annually to baseline expenditure.
“We predict continued restraint on the public sector wage bill, with the government’s early retirement programme targeting 2 200 SANDF members and broader payroll reforms. We expect infrastructure investment to remain a priority, with the R15-billion infrastructure bond issuance proceeding” says Krugel.
Debt maintenance
South Africa’s debt burden remains elevated at 77,9% of GDP, Krugel points out.
“We anticipate that the NT will confirm the debt stabilisation achieved in FY2025/26, articulate a clear path to reducing the debt ratio towards 70% in the medium term and 60% in the long term, and provide an update on the fiscal anchor policy expected to take effect from April 2027.”
Fiscal outlook
The Medium-Term Budget Policy Statement (MTBPS) 2025 projected steady fiscal consolidation, with the consolidated budget deficit narrowing from 4,7% of GDP in FY2025/26 to 2.9% by FY2028/29, and the primary budget surplus improving from 0,9% to 2,5% over the same period.
Strong revenue collections, driven by VAT and corporate income taxes, along with a lower interest rate environment, support this positive outlook.
However, risks remain from slower-than-expected economic growth and potential contingent liabilities, which could slow progress.
“Reflecting these concerns, our forecasts show a more gradual deficit reduction, from -4,9% in FY2025/26 to -3,3% by FY2028/29, highlighting that while fiscal consolidation remains on track, its pace may be slower than the NT anticipates,” says Kyle Mandy, tax policy leader of PwC South Africa.
The tax contribution from individuals – already high compared to other countries – will continue to underpin revenue collection in the upcoming fiscal year.
Mandy is expecting a more predictable budget this year with few changes in most areas of taxation.
In MTBPS 2025, the NT estimated tax revenues for 2026/27 at R2,143-billion, or growth of 6,9% on forecast nominal GDP growth of 4,9%. This includes the R20bn of unspecified tax increases for 2026/27 pencilled into the budget.
Considering the expected revenue collections for 2025/26, increases by the NT are not expected.
Tax revenues for 2026/27 are expected to come in at around R2,005-billion, and with an expected tax buoyancy of 1.2 for the year (in the absence of any tax increases or decreases), it is predicted that the tax revenues for 2026/27 will amount to around R2,128-billion before any tax changes.
This is slightly lower than what was estimated in MTBPS 2025 (including the pencilled-in tax increases), but it is anticipated that any impact on the fiscal balance will be limited.
“While the 2026 National Budget approaches, these predictions demonstrate the need for a sustainable fiscal environment in order to accelerate economic stability, investor confidence, and long-term sustainable growth.
“This will allow the government to manage economic disturbances effectively, reduce borrowing costs, and provide the necessary space for public investment in infrastructure and services,” concludes Mandy.