Investment bank Morgan Stanley anticipates that Finance Minister Enoch Godongwana's upcoming budget presentation will provide fresh momentum to South Africa's already surging bond market. Analysts at the firm describe the 25 February fiscal update as potentially "one of the most bullish budget documents prepared by National Treasury in many a year."
The optimism centres on expectations of continued fiscal consolidation, with potential upward revisions to revenue projections, placing the country in a "dramatically improving fiscal balances" position. This would further compress the risk premium investors demand for holding South African sovereign debt, extending a rally that has already seen benchmark 10-year bond yields fall more than 300 basis points from their April 2025 peak.
South African assets have benefitted from a favourable external environment, including lower oil prices and surging gold value, boosting the country's terms of trade. Domestically, investor sentiment has warmed to Godongwana's endorsement of a lower inflation target for the central bank and evidence from November's mid-term budget that fiscal discipline is a priority.
Morgan Stanley projects the consolidated budget deficit will narrow to 3.5% of gross domestic product by the 2027 financial year — at the bullish end of market forecasts — before declining further to 2.6% by 2029. This would widen the primary surplus to 2.6% of GDP, a key metric for stabilising debt levels if spending growth remains anchored near the new 3% inflation target.
The bank remains constructive on the rand, which has gained approximately 20% against the dollar since April, citing its strong correlation with precious metal prices and forecasting a move toward R15.30 in the coming quarters.
Investors will also monitor any updates on a proposed fiscal rule to anchor public finances, though Morgan Stanley cautions that a loose framework rather than a binding numerical target may disappoint those seeking stronger structural guardrails.
The sentiment is strongly bullish heading into the budget. Morgan Stanley's analysis reflects a market increasingly confident in South Africa's fiscal trajectory, underpinned by improved revenue prospects, commitment to spending discipline, and a supportive external environment. The projected narrowing deficits and declining bond yields suggest investors are pricing in a sustained improvement in sovereign creditworthiness. However, the optimism hinges on delivery — the budget must translate expectations into credible numbers. Any deviation from the consolidation narrative or a weak fiscal rule could trigger a swift reassessment. For now, the stars appear aligned for a positive market response, with the rand and bonds both positioned to benefit from continued reform momentum and improved fiscal optics.
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