Lilas Demmou
Nikki Kergozou
OECD Economic Surveys: South Africa 2025
Abstract
South Africa’s infrastructure challenges have limited growth over the past decade, increasing unemployment and deepening inequality. Persistent electricity outages since 2019 and weak transport systems have severely constrained supply chains. Following reforms, electricity supply has improved, and economic growth is projected to increase in 2025-26 as bottlenecks are further addressed. As inflation eased, policy interest rates are approaching their neutral level. However, rising government debt – now 77% of GDP – is raising debt-servicing costs and limiting fiscal space, potentially crowding out investment. To ensure debt sustainability and investment in essential infrastructure, ambitious fiscal and structural reforms are needed. The financial system’s high exposure to government debt poses a risk, although the sector appears resilient. Strengthening competition, reducing corruption and boosting private-sector investment are key to enhancing economic dynamism, reducing unemployment and alleviating poverty. Fiscal priorities include tighter spending controls, a stronger fiscal framework, well-functioning state-owned enterprises and a broader tax base.
Over the past decade increases in real GDP have been subdued and below that of the population (Figure 1.1). Growth in GDP per capita has been negative or close to zero every year between 2014 and 2024, excluding in 2021 and 2022 due to the rebound following the onset of the COVID-19 pandemic and a commodity price boom. In 2024, GDP per capita is slightly below its 2007 level (Panel B). GDP growth has been subdued, on the back of persistent insufficient access to electricity, the deterioration in the rail network and port operations, subdued investment, the high cost of doing business, a weak fiscal position and corruption. Real GDP returned to its pre-pandemic level in early 2023.
Note: In Panel A, real GDP is in national currency at 2015 constant prices.
Source: OECD Economic Outlook 117 database; and OECD National Accounts database.
Since 2007, electricity shortages have reduced labour efficiency and alongside limited investment have significantly limited actual and potential growth (Figure 1.2). Shortages have increased in recent years, peaking at 289 days in 2023 before easing significantly from March 2024 (see Chapter 4). Shortages were estimated to reduce GDP growth by 1.5 percentage points in 2023, 0.5 percentage points in 2024 and 0.2 percentage points for 2025 (SARB, 2024[1]). The increase in electricity availability is a key factor supporting an increase in potential growth and activity. Nevertheless, electricity generation is still at historic lows. It will take some time for business confidence, investment and workers’ skills to bounce back and increase potential growth towards its pre-shortages rate.
Many South Africans struggle to find work, with the employment rate at 40%, well below the 60% average in emerging G20 economies. The unemployment rate had remained around 25% over the first half of the previous decade, before gradually increasing then accelerating to 35% during the pandemic (Figure 1.3, Panel A). Although it has since declined, it remains well above its pre-pandemic level. The unemployment rates for young people, at 60%, and for women, at 34%, are notably higher than for the total population. While there remains room to improve labour market policies, boosting economic growth will be key to reduce unemployment, inequality and poverty. This requires ensuring fundamental inputs such as electricity (see Chapter 4) and creating a business-friendly regulatory environment that encourages business dynamism and job creation (see Chapter 2).
Over 2023 and 2024, activity grew below historical rates as the country endured frequent power outages, uncertainty around national elections in 2024, and rail and port bottlenecks. Investment has been a significant drag on activity, also limiting potential growth. Easing power outages from March 2024 and an increase in policy certainty, pushed up confidence. Inflation declined over 2024, allowing the central bank to ease monetary policy to keep inflation in line with its 4.5% target midpoint. Increasing nominal wage growth and disinflation supported household incomes (Figure 1.3, Panel B).
Contributions to potential GDP growth
Source: OECD Economic Outlook 117 database.
Note: In Panel A, young people refer to 15–24-year-olds, women and the total population refer to 15–64-year-olds.
Source: OECD Infra-annual labour statistics database; Statistics South Africa, Quarterly Employment Statistics (QES), December 2024; and OECD Analytical database.
Growth in exports supported the post-pandemic recovery. Commodities form a large part of exports, including metals (e.g. iron and steel) and minerals (e.g. iron ore) (Figure 1.4, Panel B). Yet, exports by type are well diversified and the country is a key exporter of transport, travel and tourism services (Panel D). South Africa’s largest export destinations are well diversified across Africa, Asia, Europe and North America (Panels A and C).
Note: Panels A and B: data are on the basis of the Harmonised System 2017. Panels C and D: data are according to the Balance of Payments methodology.
Source: United Nations Comtrade database; and OECD-WTO Balanced Trade in Services (BaTIS) database.
Activity is projected to grow moderately over 2025 and 2026, limited by uncertainty (Table 1.1). Progress in electricity availability and continuing reforms in the electricity sector suggest that access to electricity should continue improving, boosting supply (see Chapter 4). Reforms to state-owned logistics enterprise Transnet as well as measures to increase competition and create the conditions to crowd in private sector investment will continue to ease bottlenecks in rail transport and ports (Chapter 3). However, trade tensions are heightening uncertainty. Exports will only gradually increase, weighed on by the planned increase in tariffs on United States’ imports. Inflation will ease in the second quarter of 2025, following the decline in global oil prices, but will strengthen during the second half of 2025 and in 2026, as activity strengthens. Rising uncertainty will weigh on consumption. However, this will be partly mitigated by the 2024 pension reform, which alters access to retirement funds without resigning. Estimates suggest that moderate withdrawals could boost consumption growth by 0.7 percentage points in 2025, adding 0.3 percentage points to GDP growth (SARB, 2024[2]). The impact in 2026 is estimated to be limited. Investment will increase as the government, state-owned entities and businesses address significant investment needs. Growth in government spending is expected to increase in 2025 before easing in 2026, alongside contractionary fiscal policy.
Note:
1. Contribution to real GDP growth.
2. Percentage of potential GDP.
3. Percentage of GDP.
Source: OECD Economic Outlook 117 database.
Fiscal consolidation will limit government spending. The fiscal policy stance, which is restrictive, appears appropriate given the negative impact that higher perceived risk around the sovereign outlook could have on the economy. To maximise limited fiscal space, South Africa must prioritise investment and social spending while continuing to expand its fiscal capacity to address significant social and economic needs (see below). The government is undertaking measures to alleviate the impact on activity, including by prioritising reforms that remove key barriers to near-term growth and creating the conditions for leveraging private investment to address infrastructure needs. In the short term, stronger fiscal discipline, backed by a reinforced spending rule would help quickly stabilise the debt-to-GDP ratio. Infrastructure investment needs should be met by leveraging private investment through progressing in setting the institutional framework, enabling stronger participation in electricity, water and transport infrastructure. Once, debt is stabilised, the resulting fiscal space will enable higher public expenditure, further supporting growth-enhancing and inclusive policies such as investments in education, healthcare and employment opportunities.
Operation Vulindlela, an initiative by the Presidency and National Treasury, is playing a key role in reform progress (Box 1.1). In its first phase, the government has identified priority reforms in poor-performing network industries, including electricity, water, transport and digital communications, and in the visa regime to help address skills shortages. While these reforms are starting to reduce constraints to growth, significant regulatory barriers continue to limit activity (see Chapter 2). Addressing these barriers will continue to require substantial reform efforts over the coming years. The next phase of Operation Vulindlela reforms will support higher medium-term growth. Ensuring a swift implementation of these reforms will help maximise their returns. Following these targeted reforms, addressing multidimensional challenges, such as crime, will also support activity. Crime places elevated costs on the economy. Costs for households and businesses to protect themselves against crime can represent over 4% of GDP (World Bank, 2023[3]). Opportunity costs are also significant. Combined, these costs reduce potential growth. An integrated approach is needed, including reducing inequality and reversing the decline in the quality of police services.
The Presidency and the National Treasury established Operation Vulindlela in October 2020 to accelerate the implementation of a few high-impact reforms to drive economic growth and job creation. The first phase has focused on making progress across five main objectives by supporting:
Electricity supply (see Chapter 4).
A competitive and efficient freight logistics system (see Chapter 3).
A stable, quality supply of water (see Chapter 3).
A lower-cost and higher-quality of digital communication by completing the spectrum auction and completing the migration from analogue to digital signal.
A visa regime that facilitates skilled immigration and tourism, by publishing a revised Critical Skills list, implementing the e-visa system, expanding visa waivers and reviewing the policy and process for work visas.
As of May 2024, 74% of reforms for the first phase were completed or on track and for 20%, work is underway (The Presidency & National Treasury, 2024[4]). While this represents progress, this Survey highlights additional important reform areas to further boost economic growth and employment. The next phase of Operation Vulindlela is focusing on local government reform, spatial inequality and digital transformation.
Risks to activity appear to the downside. Globally, geopolitical tensions could lower global growth and trade and increase financial market risk aversion. The United States (US) has increased tariffs to 10% for South African imports, excluding items that are exempt from the reciprocal tariffs, such as certain critical minerals and bullion. South Africa sends around 7.6% of its exports to the US, of which 60% are mining products, 30% are manufactured goods, notably motor vehicles, and 5% are agricultural goods. This tariff and the risk of further changes could result in lower exports, a depreciation in the exchange rate and higher inflation. Domestically, further reform progress on electricity availability and logistics bottlenecks would strengthen the recovery in investment, boosting potential growth. However, a return to significant power cuts or logistics bottlenecks would weigh on activity. Additional transfers to state-owned enterprises would further weaken the fiscal position. These risks could elevate financial market risk perceptions, increasing debt-servicing costs. Households could withdraw more from their pension than projected following the September 2024 pension reform, which alters access to retirement funds, further boosting growth. Low-probability events, such as significant water shortages, flooding or geopolitical tensions that are significantly greater than expected could lead to major changes in the outlook (Table 1.2).
Headline and core inflation eased over 2024 although headline inflation started to increase in early 2025 (Figure 1.5, Panel A). Over 2024, year-on-year inflation decreased until October, alongside the appreciation in the exchange rate and declines in international oil and food prices (Panels B and C). Since October 2024, the depreciation in the exchange rate has supported an increase in inflation although inflation expectations have continued to ease. Average monthly nominal non-agricultural earnings accelerated over 2024, reaching 5.3% year-on-year in December 2024 (Figure 1.3, Panel B). Inflation will fall in the second quarter of 2025, following the decline in global oil prices, but will strengthen during the second half of 2025 and in 2026, as activity strengthens and the output gap narrows.
Note: In panel A, core inflation refers to the consumer price index excluding food and non-alcoholic beverages, fuel and energy; the shaded area indicates the projection period. In Panel D, the South African Reserve Bank’s policy rate is the repurchase rate.
Source: OECD Economic Outlook 117 database; OECD Consumer price indices database; and South African Reserve Bank.
The South African Reserve Bank (SARB) lowered the repurchase rate from 8.25% to 7.5% between September 2024 and January 2025, aiming to keep inflation around the midpoint of the 3-6% inflation target (Panel D). The easing in monetary policy appears appropriate given the declines in inflation. The repurchase rate is assumed to decrease by a further 50 basis points over 2025. However, further volatility in the exchange rate is creating significant uncertainty around the outlooks for inflation and monetary policy. Continuing to closely monitor how the transmission of monetary policy, government reforms and other external shocks impact inflation will help determine the monetary policy stance required to keep inflation at the target midpoint.
1.2.1. Reviewing the inflation target to better support economic growth
Domestic economic conditions and international competitiveness could be further enhanced by lowering South Africa’s inflation rate. South Africa’s inflation target band is relatively high and wide (Table 1.3). South Africa adopted an initial inflation target of 3-6% in 2000 and plans to lower the target to 3-5% by 2004, then 2-4%, never eventuated. The central bank has emphasised the target midpoint as its objective since 2017, following a drift towards a perceived target closer to the 6% upper limit (Kganyago, 2019[5]). Yet, the country experienced higher inflation between 2007 to 2022 relative to other large emerging-market economies and major trading partners, which could be one factor in the deterioration in its international competitiveness (National Treasury, 2024[6]; Rapapali and Steenkamp, 2019[7]). Formalising the focus on keeping inflation near a 3% midpoint could better support economic growth while a narrower inflation target band could be considered to better anchor inflation expectations (Kganyago, 2021[8]). The SARB and the National Treasury are currently considering this option and analysing the most appropriate target band.
Inflation targets in major trading partners and other large emerging-market economies
Adjusting the inflation target may entail transitional costs, which could be substantial if achieving a lower target requires significant interest rates hikes and reducing economic growth. To minimise these costs, it will be important to keep inflation expectations well anchored and to carefully select the timing of such change. The SARB’s credibility will likely help keep inflation expectations well anchored, as demonstrated in 2017 when South Africa switched to emphasising the target midpoint and consequently achieved lower inflation. While this was helped by positive supply shocks over 2017, the SARB’s commitment to maintain this lower level of inflation also likely played a role in price and wage setting (Kganyago, 2019[5]). The SARB and the government could also minimise output losses through carefully timing the change with the economic cycle, for example at a point where future inflation is projected to be in the lower half of the current 3-6% target range for some quarters. Given the low current and projected inflation over coming quarters, it seems an appropriate time to undertake the change.
One key concern relates to administered prices, as stronger and unexpected increases of those prices will make it more difficult to achieve the inflation target. Administered prices, such as electricity and water tariffs and school fees, have risen faster than other prices in recent years. These prices, comprising 11.5% of the CPI basket (excluding fuel), have resulted in greater pressure on headline inflation (SARB, 2023[9]). Addressing the structural challenges resulting in elevated inflation for certain administered prices, particularly in the electricity sector and relating to the poor performance of municipalities (see Chapters 3 and 4), could help support the implementation of monetary policy, as regularly outlined by the Monetary Policy Committee. In addition, strong coordination across government, including the swift inclusion of the new inflation target in government budgets, and clear and transparent communication will help minimise output losses and keep inflation expectations well anchored (IMF, 2024[10]; National Treasury, 2024[6]). Such communication could include informed discussions with the public and social partners. In particular, ensuring that public-sector wage increases are kept in line with inflation will also help contain price pressures (see below).
1.3.1. The financial system appears resilient
South Africa’s financial system appears resilient (SARB, 2024[11]; IMF, 2024[10]). Banks’ capital as a share of risk-weighted assets remains above minimum requirements and around rates in many OECD and G20 economies (Figure 1.6, Panel A). Corporate debt has been broadly stable and, at 31%, is low compared to the average across OECD and G20 emerging economies (Panel B). Household credit growth has remained relatively constant as a share of GDP, at 34% in the second quarter of 2024 (Panel C).
Note: In panel A, panel B and panel D, OECD, EU and G20EME are unweighted averages. G20EME covers Argentina, Brazil, China, India, Indonesia, Mexico, Saudi Arabia, Türkiye and South Africa; OECD excludes New Zealand.
Source: IMF Financial Soundness Indicators database; IMF Global Debt database; and South African Reserve Bank.
The share of non-performing loans (NPLs) to total gross loans is high compared to the average OECD and emerging G20 economy (Figure 1.6, Panel D), which can increase the risk of credit losses. While South Africa’s share of NPLs to total gross loans was already relatively high in 2019, this difference has since become even larger. At the onset of the pandemic, NPLs rose sharply in South Africa and have averaged 4.9% over 2020 to 2024, well above their 3.3% average between 2014 and 2019. This is the opposite to in the average OECD and G20 emerging economy, where NPLs are now below their early 2019 levels (Panel D). Since 2019, the share of NPLs in the banking sector has been rising for consumer and corporate loans and has been particularly pronounced for retail and micro, small and medium-sized enterprises (SMEs) (SARB, 2024[11]). To mitigate the increase in NPLs, banks have been increasing their provisions for potential credit losses, suggesting that they should be able to absorb a further increase in defaults. In addition, the decline in interest rates should help ease financial conditions and lower the cost of credit for consumers and firms. The pension reform implemented in September 2024, which changed access criteria, will likely result in households using some of these funds to reduce their debt.
1.3.2. Staying resilient to the effects of high public debt, low growth and climate change
A key risk to financial stability is the financial system’s high exposure to government debt combined with the government’s elevated debt and debt-servicing costs that are projected to remain above 20% of revenues in coming years (see below) (SARB, 2024[12]; IMF, 2023[13]). The domestic financial sector has held an increasing proportion of government bonds over recent years (Figure 1.7, Panel A) (SARB, 2024[12]; National Treasury, 2024[6]). The share of government bonds in banks’ total assets reached 17% in March 2025 up from around 8% in 2013 (Panel B). This exposes the domestic financial sector to a common risk of a sharp repricing of government debt. Recent assessments by the SARB decided that while no formal policy intervention was required, the Prudential Authority would develop ways to monitor and close valuation gaps in banks’ holdings of government bonds (SARB, 2023[14]). Phasing in various prudential measures over time could also help reduce risks (IMF, 2023[13]). Continuing fiscal consolidation will help reduce the financial sector’s exposure in the long term. Non-residents have started to increase their net holdings of government bonds since May 2024 as investor sentiment towards South Africa improved. While the non-resident share of government debt has not yet increased due to high levels of debt issuance, a continuation of this trend may reduce the exposure of the domestic financial system to government debt (SARB, 2024[11]).
Note: Panel A: 'Monetary institutions' correspond to South African registered banks, mutual banks and South African branches of foreign banks; 'Other financial institutions’ correspond to unit trusts, financial companies and holding companies; and 'Other' to the public sector, private non-financial corporates, households and nominee companies. Panel B: ‘Banks’ refers to South African registered banks, mutual banks and branches of foreign banks.
Source: National Treasury of South Africa; and South African Reserve Bank.
The structure of South Africa’s capital markets is becoming shallower and less liquid, reducing the ability of borrowers and investors to diversify (SARB, 2024[11]; 2024[12]; 2023[14]). Government bonds made up 81% of total outstanding bonds in February 2024, up from 60% in 2008. The number of companies listed on the Johannesburg Stock Exchange has declined every year between 2016 and 2023. Turnover in bond and equity markets has also been declining (SARB, 2024[12]). Some factors driving the changing structure include low growth, the potential crowding out of private debt by rising government borrowing (particularly as domestic banks absorb an increasing share), reduced foreign portfolio investment and domestic investors increasingly diversifying into global markets (SARB, 2024[12]). The increase in the prudential limit for institutional investors to invest abroad from 40 to 45% in 2022 also contributed.
Some factors help to mitigate the financial risks associated with the financial sector becoming shallower and more exposed to government debt, including a flexible exchange rate, levels of foreign exchange reserves that meet most international benchmarks and low foreign exchange mismatches on bank and sovereign balance sheets (SARB, 2023[14]). In addition, the risk of a sharp change in capital flows may have declined following the formation of the coalition government and recent reform efforts. Nevertheless, continuing to pursue reforms that increase the relative attractiveness of South African assets will help diversify the financial system.
South Africa’s low economic growth and high inequality is an unfavourable operating environment for the financial sector and poses a risk to financial stability (SARB, 2024[12]). Low and inequitable economic growth can reduce social cohesion and increase the probability of social unrest. This can be a highly concentrated shock to the system and result in an increase insurance claims, as occurred following a period of social unrest in 2021. Continuing to implement structural reforms to boost growth, lower unemployment and reduce inequality will help boost the resilience of the financial system.
Climate change is increasing financial stability risks, particularly for the insurance industry (see Chapter 3). Domestic insurance claims due to extreme weather events dominated claims in 2022/23 (SARB, 2024[12]). The SARB undertook its first comprehensive stress test of South Africa’s major insurance companies in 2023/24, incorporating a climate-change component (SARB, 2024[12]). Going forward, the SARB will include more climate-related scenarios in its stress tests. In May 2024, the Prudential Authority issued guidance on climate-related disclosures, governance and risk practices for banks and insurers.
Remaining on the Financial Action Task Force’s (FATF) greylist past October 2025 may pose a risk to financial stability. In February 2023, the FATF added South Africa to its greylist due to weak measures to combat money laundering and terrorist financing (AML/CFT). Greylisting increases scrutiny from foreign counterparts, raising processing, monitoring and reporting costs, though the impact on financial markets seems to have been limited so far (Kganyago, 2024[15]; IMF, 2023[13]). South Africa must address strategic deficiencies in its AML/CFT regime by June 2025 for possible removal from the greylist in October 2025. By February 2025, only two out of 22 action items remained unaddressed, although these goals are demanding (National Treasury, 2025[16]). A swift implementation of these action items will help maintain the attractiveness of investing in South African assets.
1.3.3. Continuing to closely monitor and adapt prudential regulation
The SARB continues to closely monitor financial stability risks and evolve its prudential regulation. South Africa continues to progress towards compliance with Basel III standards. The Basel Committee on Banking Supervision (BCBS) assessed South Africa as largely compliant with its Net Stable Funding Ratio (NSFR) standard and compliant with its large exposure framework in April 2023. The remaining Basel III post-crisis reforms are planned to be incorporated into South Africa’s regulatory framework with effect from 1 July 2025. The results of the 2023/24 stress tests suggest that prudentially regulated domestic financial institutions in aggregate remained resilient (SARB, 2024[12]). To more effectively deal with failing institutions, the SARB is developing and implementing the strengthened resolution framework (SARB, 2024[12]). This includes developing resolution plans for designated institutions and requirements to improve their resolvability. To achieve this, the SARB are developing several Prudential Standards, including requirements on stays and resolution moratoriums, the transfer of assets and liabilities in resolution and ensuring that systemically important financial institutions have adequate loss-absorbing capacity requirements.
To increase trust and confidence in banks, the country’s first deposit insurance scheme has been in place since April 2024, with its full implementation ongoing (SARB, 2024[12]). The scheme covers qualifying depositors for up to ZAR 100 000 if their bank fails, is liquidated, or placed into resolution. Ensuring a swift full implementation of the scheme will enhance its effectiveness.
To increase financial sector resilience, the SARB structurally increased the countercyclical capital buffer (CCyB) to 1% on 1 January 2025. It had been at zero since it was introduced in 2016, limiting its countercyclical use. This change will allow the SARB to move the CCyB between 0-2.5% to adapt to the state of the banking sector. To reduce potential adverse effects on lending, the SARB will phase in the increase over one year and include an analysis on its economic impact in its impact assessment.
1.4.1. Debt sustainability is at risk
High bond yields and low growth make debt-servicing costs increasingly unsustainable
South Africa's public finances have been characterised by persistent primary deficits and an increasing sovereign debt-to-GDP ratio, which has risen from 31.5% of GDP in the 2009/10 fiscal year to an estimated 77% of GDP in the 2024/25 fiscal year, which is substantially higher than the average G20 emerging-market economy (Figure 1.8, Panels A, B and C). Since 2016/17, the interest rate on government debt has consistently exceeded the long-term economic growth rate, posing a risk to debt sustainability (Panel D).
Note: Panel B: G20EME is computed as an unweighted average and covers Argentina, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, Türkiye and South Africa. Panel C: Periods shown refer to fiscal years from April of the previous year to end March of the current year.
Source: National Treasury of South Africa; IMF, World Economic Outlook; and OECD Economic Outlook database.
The mounting debt burden has led to escalating debt-servicing costs (Panel C). The share of debt-servicing costs to revenue increased markedly from 14.3% in 2018/19 to 20.7% in 2023/24 (SARB, 2023[14]). These costs stand at 5.2% of GDP in the 2024/25 fiscal year, up from 3% a decade ago and are higher than the average costs in emerging countries of 3.1% of GDP. They are expected to average 5.4% of GDP in the 2025/26 and following two fiscal years (National Treasury, 2025[17]). This growing fiscal pressure limits the government’s ability to fund essential services, meet social needs and invest in economic growth. Over the next medium term expenditure fiscal period (2025/26-2027/28), the government will spend more on debt-service costs than on health, basic education or social development (National Treasury, 2025[18]). Debt-service costs are forecasted to grow on average by 7.4% annually, compared to 5.4% for consolidated expenditures (National Treasury, 2025[17]).
Furthermore, since 2018, non-resident investors have reduced their holdings of South African government bonds, with their share dropping from 40% in 2017 to 25% in 2024 (Figure 1.7, Panel A). Sovereign bonds are now increasingly held by domestic banks, pension funds and insurers. While this shift reduces financial risks from global shocks, it increases the reliance on the domestic financial sector to absorb the growing supply of government bonds. This dependency heightens risks within the sovereign-financial sector nexus, particularly the potential impact of significant bond repricing on bank balance sheets and the risk of crowding out private investment, as discussed above (SARB, 2023[14]).
Ambitious reforms are needed to put the debt-to-GDP ratio on a downward path
To reduce fiscal risks and place public debt on a downward trajectory, an ambitious programme of fiscal and structural reforms that achieves higher primary surpluses and GDP growth is necessary. Structural barriers to growth, which result in low fiscal spending multipliers, the potential crowding-out of private investment combined with an already high debt-to-GDP ratio, limit the possibility of relying on debt-financed fiscal stimulus (National Treasury, 2024[6]; Janse van Rensburg, de Jager and Makrelov, 2021[19]). Likewise, the narrow tax base combined with sluggish growth implies that an approach relying on simple tax rate increases is likely to be ineffective at increasing tax revenues and generating primary surpluses (Havemann and Hollander, 2022[20]; National Treasury, 2024[6]).
Figure 1.9 and Table 1.4 illustrate the fiscal impact of the fiscal recommendations detailed in the sections below. The potential growth and balanced primary budget scenario assumes that the economy operates at a potential growth rate of 1.7% as electricity shortages are resolved, allowing growth to gradually reach its steady state of 2.5%. The government is also expected to follow through with planned fiscal consolidation, resulting in a modest primary balance surplus of 0.1% of GDP. This scenario assumes recent reforms will materialise, hence growth and the deficit would deviate significantly from the past decade’s average economic growth of 0.9% and primary balance deficit of 1.3% of GDP. Yet, this scenario would likely be insufficient to stabilise the debt-to-GDP ratio, which could reach almost 110% by 2050.
In an alternative tax reform and spending controls scenario – involving stronger fiscal reforms, including a substantial reduction in transfers to state-owned enterprises (SOEs), an expanded tax base implying also an increase in environmental taxation, as well as stricter spending controls – the primary surplus could increase to 1% of GDP over the long term. This would stabilise debt at its current high level.
A meaningful and sustained reduction in the debt-to-GDP ratio would require a more comprehensive scenario of structural and tax reforms. This would entail a concerted fiscal effort to boost government revenues, primarily through spending controls and measures focusing on increasing the tax base rather than overall tax rates (see below), similar to the scenario above. This approach also requires an ambitious structural reform programme aimed at enhancing business dynamism and job creation by easing product market regulation and better supporting workers to upskill. Limiting transfers to failing state-owned enterprises (SOEs) where private actors can be attracted (e.g., in the electricity and transport sectors), improving spending efficiencies while increasing infrastructure investment will also be important, as discussed in this chapter and the remainder of the Survey (see Table 1.4 and Chapters 2, 3 and 4). Furthermore, greater economic dynamism combined with consolidation efforts would help generate higher revenues, leading to larger primary surpluses than in the previous scenario.
Gross debt in % of GDP
Note: The ‘potential growth and balanced primary budget’ scenario extends the short-run economic outlook, assuming an increasing growth rate from potential (1.7%) and converging towards the steady state (2.5%) from 2036 and a primary balance of 0.1% of GDP. The ‘tax reforms and spending control strategy’ scenario combines a primary surplus of 1% of GDP from 2026 with the baseline scenario. The ‘structural and tax reforms’ scenario takes into account the effects of implementing structural reforms that would increase potential growth and tax reforms that would increase the primary surplus.
Source: OECD calculations based on data from National Treasury and the South African Reserve Bank.
Estimated change in the fiscal balance in the medium to long term
Note: Revenues from the carbon tax may vary significantly depending on the design of reforms, including on tax allowances. These revenues will provide differing amounts of fiscal space for public expenditures. As such, the range of spending depends on the range of revenues collected through the carbon tax, assuming revenues will primarily be used to meet these needs.
Source: OECD calculations.
The long maturity of debt increases fiscal costs but lowers financial risks
The average maturity of debt increased to over ten years in recent years and is significantly longer than peers (Figure 1.10, Panel A) (SARB, 2023[14]). This extended maturity lowers financial risks by reducing the country's vulnerability to short-term fluctuations in interest rates. However, long-term bonds are associated with higher borrowing costs (Panels B and C), as investors seek greater returns for the extended holding period (Mamburu, 2024[21]).
A significant portion of long-term bonds is set to mature over the next eight years, totaling ZAR 249 billion (3.6% of GDP) per year from 2024 to 2032—more than four times the level that matured each year in the previous decade. To manage this, the National Treasury extends maturities through a switch auction programme, replacing bonds maturing in one to two years with longer-term bonds. This strategy effectively reduces financial risks, concentrating lending at the "ultra-long end" of the yield curve. However, the macroeconomic outlook is improving and the short-term roll-over risk is decreasing. Therefore, the strategy of increasing the maturity of newly issued debt could be reconsidered to benefit from lower rates.
Source: BIS, Debt Securities Statistics dashboard; South Africa Reserve Bank; and OECD Main Economic Indicators database.
Transfers from the central bank will lower the need for debt to increase in the short term
The government has decided to mitigate the fiscal risks of reducing borrowing over the medium term using a portion of the valuation gains from the Gold and Foreign Exchange Contingency Reserve Account (GFECRA). Following the implementation of the new framework announced in February 2024, the South African Reserve Bank (SARB) is transfering funds from this account, which tracks the profits and losses from changes in the value of gold and foreign currency reserves (National Treasury, 2024[22]). Over the past two decades, the balance of the GFECRA has significantly increased.
Under the new framework, the government can access these funds to decrease debt issuance while simultaneously strengthening the SARB’s capital position (Kganyago, 2024[15]). This sum is expected to represent 1.4% of GDP in the 2024/25 fiscal year and 0.3% of GDP in the following fiscal year. Ensuring that these distributions are directed towards reducing government debt – currently at elevated levels, which heighten the country’s risk premia and threaten financial stability – and not used to finance new deficits, will maximise the benefits of the new framework.
While using these funds provides a short-term solution, preventing an unsustainable accumulation of debt in the medium to long term requires fiscal and structural reforms. The government has demonstrated a strong commitment to improve its fiscal performance over the past three years, with the aim to stabilise debt by 2026. After a decade of primary deficits, the government achieved a near-zero primary balance in the 2022/23 fiscal year, followed by slight surpluses of 0.7% of GDP in 2023/24 and 0.5% of GDP in 2024/25, with 0.7% of GDP estimated for 2025/26 (Figure 1.8, Panel C) (National Treasury, 2025[17]). These surpluses are expected to restore investor confidence, reduce risk premia and lower interest rates, ensuring more sustainable public finances. Achieving this will require a mix of tax and spending measures while protecting essential social and growth-oriented policies.
1.4.2. Maintaining social and growth-friendly policies is key for credible fiscal consolidation
A credible fiscal consolidation strategy must safeguard growth prospects and social cohesion. These dimensions are key considerations for rating agencies when assessing country risks, and thereby impacting the risk premium and interest rates. For example, in January 2024, Fitch reaffirmed South Africa’s credit rating at BB- with a stable outlook, citing sluggish GDP growth, high inequality, rising debt levels and a modest fiscal consolidation strategy as reasons (National Treasury, 2024[23]). Excessive cuts to growth-friendly expenditure risk stifling the economy and undermining fiscal consolidation. This occurred in the euro area from 2010 to 2015, where aggressive deficit reductions led to lower growth without significantly decreasing debt-to-GDP ratios. The heightened risk of social instability also increases the country risk premium for both firms and the sovereign in capital markets (IMF, 2023[13]).
Public investment as a share of GDP has steadily declined to significantly below the OECD average, which has formed a significant part of debt consolidation efforts to date (Figure 1.11). Gross public capital spending in 2022 had declined by 26% in real terms from its 2016 peak. This reduction has negatively affected actual and potential growth and limit the ability to boost fiscal revenues and improve the primary balance. Moving forward, a critical challenge for policymakers will be to maintain adequate levels of public investment while pursuing fiscal consolidation. The 2025 May Budget Overview marks a shift in this trend, with payments for capital assets projected to be one of the fastest-growing components of non-interest public expenditures over the next Medium-Term Expenditure Framework (2025/26–2027/28), increasing by 7.5% annually (against an annual average of 5.4% for consolidated expenditures). This growth is primarily driven by infrastructure investments in transport and water projects. Encouraging greater private sector participation in infrastructure projects could further ease the pressure on public finances (see below, Chapters 3 and 4).
Note: In panel B, OECD is an unweighted average excluding Chile and Türkiye.
Source: OECD Economic Outlook database.
High unemployment, poverty and inequality put increasing pressure on social spending, which was relatively preserved over the last decade. Excluding debt-servicing costs, the largest components of the ZAR 2.6 trillion (32.8% of GDP) budget for 2025/26 are education, social protection and health. Average annual growth in spending on social protection (9.2% per year) and education and health (8.9% per year) has been faster than aggregate spending (8.5% per year) over 2009-2022 (National Treasury, 2024[23]). Government spending is expected to remain highly redistributive, with spending on health, education, social protection, community development and employment programmes projected to account for 61% of total consolidated non-interest spending over the next three years (National Treasury, 2025[17]).
South Africa’s means-tested cash-transfer system provides crucial income support, especially to the elderly and households with children (OECD, 2022[24]). Approximately 54% of the population relied on some form of social transfer from the government in March 2023. These tax-funded, non-contributory social grants supply as much as 71% of the income for households in the bottom 20% of the income distribution. Despite fiscal consolidation efforts, the government should continue preserving social assistance spending given its critical role in reducing poverty, inequality and protecting vulnerable households from economic shocks.
The Social Distress Relief (SDR) grant, introduced during the pandemic, addressed a gap in the social protection system by covering unemployed working-age individuals, including informal workers, who could not benefit from government income support. It covers 8.5 million South Africans (13.3% of the population), with two-thirds of applicants aged 20-34. Though modest, the grant is highly redistributive and still plays an important role in reducing poverty. Following an extension of the programme last year, the government is evaluating the possibility to permanently fund it in the context of a broader social security reform, which would protect against future expenditure cuts.
Needs in education, healthcare and worker support are significant and largely unmet. South Africa exhibits some of the highest levels of inequality globally, along with high poverty and unemployment rates. Strengthening these policies would enhance worker productivity, promote broader inclusion in the labour market and more generally support growth, alongside product market reforms aimed at boosting job creation (Chapter 2) (OECD, 2022[24]; 2020[25]; Onaran and Oyvat, 2024[26]). This requires creating fiscal space through growth-promoting policies and improved efficiency in public spending (see section below).
1.4.3. Managing public spending and limiting inefficiencies
Maintaining the public wage bill under control
Meeting critical social and economic needs, as discussed above, requires substantial spending, leaving limited flexibility for a reprioritisation strategy. However, the public sector wage bill stands out as a key area for potential adjustment. In 2022, the public sector wage bill stood at 3.5 percentage points of GDP above the OECD average, while the share of public employment in total employment was only 1.2 percentage points above the OECD. For comparison, Denmark has a wage bill similar to that of South Africa (as a share of GDP) but a 50% larger share of public employment than the OECD average. These figures indicate that the relatively high wage bill in South Africa is primarily driven by elevated compensation levels rather than the size of the workforce (National Treasury, 2023[27]). Additional evidence suggests a significant wage premium for working in the public sector compared to in the private sector (Kerr and Wittenberg, 2017[28]; Bhorat et al., 2015[29]).
Recent measures since the pandemic have reduced the wage bill from 34% of consolidated spending in 2020/21 to an estimated 32% in 2024/25 (National Treasury, 2023[27]; National Treasury, 2025[18]). Average wages in the public sector grew by more than inflation and those in the private sector between 2015 and 2021. However, the trend has reversed since the pandemic, with real public wages declining following an agreement for wage freezes.
The government aims to continue this downward trend in public sector wages over the medium term. Since October 2023, the government has implemented controls on payroll systems, aiming to assist different public entities in managing fiscal sustainability when creating and filling vacant posts in national and provincial departments. However, resistance from public sector unions means reductions will likely rely on headcount adjustments. The authorities have committed to avoid wage and headcount adjustments in priority sectors such as health, education and police. Yet highly paid civil servants, who have particularly benefited from inflation overshooting and the high initial level of wages, remain well positioned. The share of public servants earning over ZAR 600 000 annually (EUR 31 000) has increased from 4.4% to 19% in a decade, and the share earning over ZAR 1 million (EUR 51 700) has increased from 0.8% to 4.5% (National Treasury, 2023[27]). In the medium term, efforts to contain public sector wage growth should focus on keeping wage increases in line with inflation. In the short term, to correct for past overshooting, wage growth can be contained below inflation, but across the board wage agreements should be avoided to ensure highly paid civil servants shoulder most of the weight of the consolidation.
Improving the efficiency of SOEs and reducing fiscal transfers
Restructuring SOEs holds significant potential for substantial savings. South Africa has a higher level of public ownership than most OECD and emerging economies, with over 40 full or partial SOEs (Figure 1.12). Many of these firms play a key role in the economy, particularly in network industries, such as electricity, rail transport, water and telecommunications, which are essential for delivering basic services and driving productivity growth.
Scope of public ownership
Note: Indicator value increase in the stringency of the regulatory environment. G20EME is the unweighted average of Brazil, China, Indonesia, Mexico, South Africa and Türkiye. The indicator for South Africa reflects the laws and regulations in force on 1 January 2023. For some countries, the indicator reflects those in force on 1 January 2024.
Source: OECD Product market regulation database 2023/2024.
Inefficiencies in SOEs place a significant burden on public finances in two main ways:
Weak governance of SOEs has required frequent fiscal transfers to sustain operations, yet these funds have been insufficient for proper infrastructure maintenance and upgrades. This diversion of public resources has limited investment in critical areas like education, health and broader public infrastructure. Nearly ZAR 310 billion has been deployed to recapitalise SOEs since 2008/09, equivalent to 27% of GDP (National Treasury, 2024[6]). Around 70% of this went to Eskom, with most of the remainder allocated to South African Airlines. The medium-term increase in gross loan debt is also partly driven by financing the Eskom debt-relief arrangement (see Chapter 4).
Significant inefficiencies in SOEs undermine their ability to deliver essential services, such as freight and energy, disrupting business activity and productivity, which trickle down into lower revenues from corporate income tax. Over one-third of the decline in South Africa’s growth after 2010 can be explained by the direct effects of reduced productivity from public utilities (National Treasury, 2024[6]).
Government guarantees to SOEs constitute an additional fiscal risk which has increased over time as SOEs otherwise struggle to access capital markets (SARB, 2024[12]) (see Chapter 4). The government has been working to reduce its exposure to this risk and between March 2022 and March 2023, loan guarantees declined from ZAR 559.9 billion (8% of GDP) to ZAR 478.5 billion (6.8% of GDP). Reforms have also been implemented to mitigate fiscal exposure by ensuring better monitoring and accountability of guarantees and using guarantee conditions to raise operational efficiency (National Treasury, 2024[23]).
Broad reforms are underway to restructure SOEs in the energy, freight, water and telecommunications sectors (see Chapters 3 and 4). These include moving towards a more competitive-friendly environment, leveraging private investment and improving governance. The government is also advancing the National State Enterprise Bill, introduced in Parliament in January 2024. This Bill aims to create the State Asset Management SOC Ltd, which will establish a centralised SOE model. This would align South Africa's governance of SOEs with international best practices through a distinct legal framework for SOEs. This new holding company, governed by a CEO and Board of Directors, will manage at least 13 SOEs. The bill mandates the government to develop a national strategy aimed at enhancing the financial and operational sustainability of these enterprises. This strategy would include performance targets, developmental objectives, financial recovery plans and opportunities for private investment.
Alongside the reform to SOE governance, the recent reforms to public-private partnerships (PPP) and the new public procurement bill, signed into law in July 2024, will also help increase the efficiency of public operations. The public procurement bill strengthens the role of accountants of procurement institutions to safeguard against corruption while the reforms to PPPs will facilitate the use of private financing to reduce the investment gap of SOEs. The establishment of an infrastructure finance and implementation support agency in 2025 will coordinate the planning and preparation of large projects in direct collaboration with private financial institutions. These are important steps to improve the governance of the public sector’s economic activity that need to be implemented swiftly as they have the potential to support growth and fiscal sustainability.
1.4.4. Strengthening the fiscal framework
South Africa’s fiscal framework lacks a formal fiscal rule, but since 2012 has relied on a nominal expenditure ceiling to manage public finances. It is set based on transfers to line departments and provincial governments and is adjusted annually for inflation to maintain a constant real target for non-interest expenditure. The National Treasury issues technical guidelines on the projected ceiling for line departments, which they use for budgeting. The final level of the ceiling is then set in a discretionary way: the National Treasury may adjust the expenditure ceiling to reflect the fiscal stance or in response to shocks, such as the pandemic or higher-than-expected revenues (Soobyah, Mamburu and Viegi, 2023[30]).
An expenditure ceiling can help direct the trajectory of nominal spending. However, in South Africa it has failed to curb debt accumulation because it does not link the trajectory of medium-term expenditure to that of revenue and it does not have a fiscal balance (or debt) objective to serve as an anchor. As a result, if revenue falls short of expectations because growth turns out lower than projected, the debt ratio will rise. For instance, since 2016/17, fiscal revenues largely surprised on the downside due to weak growth and over-optimistic projections, while expenditures were more closely aligned with forecasts (National Treasury, 2024[6]). This has resulted in persistent primary deficits, despite the expenditure ceiling.
South Africa needs a strengthened fiscal framework, and it is welcome that the government is considering introducing a binding anchor to the existing nominal primary expenditure ceiling to ensure fiscal consolidation. This strategy aligns with broader international practices, where fiscal anchors – such as debt ceilings or deficit limits – are used to manage debt accumulation (Wyplosz, 2012[31]). Defining a prudent debt ratio target would provide a clear path for a progressive consolidation over, for example, the next ten years and would be an anchor for the fiscal rule.
Spending rules have been found to be more effective than a spending ceiling in reducing debt and fulfilling the objectives of fiscal frameworks (Fall and Fournier, 2015[32]). A typical spending rule is to set spending growth structurally below revenue growth (adjusted for the economic cycle), with corrective measures if not respected. One way to ensure this could be to link expenditure growth only to inflation projections. In doing so, expenditure would grow at a lower speed than revenues, which in the medium term increases proportionally to prices but also growth. Consequently, the fiscal balance would progressively improve, allowing the debt ratio to eventually decline.
A phased approach to implementing the fiscal rule may be necessary to ensure both effectiveness and public acceptability. Such sequencing will also help striking a balance between fiscal discipline to restore debt sustainability and the need to increase key public spending that supports growth and inclusiveness in the medium to long term. As a first step, establishing a rule that indexes public expenditure growth to inflation only would help gradually slow debt accumulation. Assuming no other policy changes and under certain macroeconomic assumptions – including real economic growth at its potential rate, inflation at its midpoint target, long-term interest rates 100 basis points below the current level and a unitary tax-to-GDP elasticity – back-of-the envelope calculations suggest it would take around five years to stabilise debt levels. Once the debt ratio is stabilised in a sustainable manner, there would be fiscal space for expenditure growth to rise at a faster pace than inflation.
For the fiscal rule to be effective in the short term, budget planning would need to be based on cautious inflation projections – potentially lower than consensus forecasts. Furthermore, in emerging economies like South Africa, a cap on current expenditures can help avoid fiscal rules that inadvertently stifle public investment (Eyraud et al., 2018[33]). This would help balance the need for fiscal discipline with the need to support long-term growth through public investment.
The South African government has already taken steps to enhance fiscal discipline. In the 2025 Budget, the government outlined its approach, namely anchoring fiscal policy to a debt-stabilising primary surplus. Under this strategy, the budget primary surplus is set to reach between 0.7 and 1.6% of GDP over the next two years and continue rising throughout the decade to accelerate debt stabilisation. This commitment is a positive step, and if successfully implemented, the strategy could lead to a fast stabilisation of the debt-to-GDP ratio. However, it carries risks, particularly if revenue projections—especially those tied to policy changes—fall short of expectations, as has occurred in the past.
As part of its broader efforts to enhance public finance management and strengthen its fiscal framework, South Africa has conducted regular Spending Reviews since the mid-2010s, reinforcing accountability and transparency. However, the overall impact has been moderate, with persistent challenges such as unplanned transfers to state-owned enterprises (SOEs), pressures from the public wage bill (both discussed above), and resistance or capacity constraints within departments to conduct in-depth spending reviews and effectively prioritise expenditures. Continuing spending reviews and strengthening the implementation of their recommendations will contribute to enhance fiscal consolidation. Ensuring that spending reviews meet key criteria could boost their effectiveness, including involvement from the National Treasury and government departments at all stages, and notably during the implementation of conclusions, systematic integration into the budget process, political leadership and support on adopting recommendations, and clear and publicly available recommendations (OECD, 2022[34]).
1.4.5. Broadening the tax base to achieve primary surpluses with minimal growth impact
Over the past decade, revenues were generally lower than projected in the budget, excluding in 2022 and 2023 due to favourable commodity prices. In 2023/24, revenue collection weakened significantly, largely due to sluggish growth (National Treasury, 2024[23]). Increases in tax rates, including personal income tax (PIT) and value-added-tax (VAT) rates between 2016 and 2020, have had a limited effect on the tax-to-GDP ratio. Key reasons are slow economic growth combined with weakening administrative efficiency at the South African Revenue Service (SARS) during the period of state capture (National Treasury, 2024[6]).
South Africa’s tax-to-GDP ratio stands at 24.5% in 2023/24 fiscal year, higher than in most emerging economies but below the OECD average. Various tax provisions and exemptions lower effective tax rates well below statutory levels, suggesting potential revenue gains through policy streamlining, particularly in primary revenue sources: personal income tax, value-added tax and corporate income tax (OECD, 2022[24]). Tax expenditures remained relatively constant as a share of nominal GDP over the last five years, amounting to 4.2% of GDP in the fiscal year 2022/23, with PIT accounting for nearly half and VAT for 32%.
The PIT is the largest revenue source, at 37.3% of total tax revenues in 2023/24. It is heavily reliant on the top 20% of taxpayers, who contribute who account for approximately three-quarters of total collections (76% of PIT in 2023), while top personal income tax rates remain significantly higher than those in peer countries (National Treasury, 2025[18]). However, progressivity is undermined by generous deductions and allowances, which disproportionately benefit high-income earners (Figure 1.13, Panel A). In 2025, like in 2024, the government chose not to adjust personal income tax brackets for inflation, boosting revenue collection but failing to enhance progressivity. Despite already highly skewed collection at the top of the income distribution, recent analysis suggests room for slightly increasing progressivity and deepening PIT revenue collection. This could be achieved by lowering the threshold at which the highest tax rate applies and by increasing the tax rates of four of the higher tax bands (Wright et al., 2023[35]). However, some evidence suggests that raising the top marginal tax rate would have a limited impact due to Laffer curve effects (Axelson et al., 2024[36]). Alternative potential reforms to broaden the tax base already highlighted in the previous Economic Survey of South Africa (OECD, 2022[24]) include reducing tax expenditures by better valuing fringe benefits within the PIT base, phasing out the additional tax relief benefiting pensioners aged over 65 and 75 years and replacing medical tax credits with the national health insurance system.
Note: In panel C, fiscal periods refer to the year to March in the year shown. Growth is calculated using nominal corporate income tax values.
Source: SARS; OECD Consumption Tax Trends 2024; South African National Treasury; and OECD Revenue Statistics database.
The value-added tax, the second-largest revenue source, contributed 35.4% of total tax revenues in 2023/24 but is below the OECD average (Figure 1.13, Panel B), suggesting room to increase both the tax rate and its base while alleviating the impact on the most vulnerable, as already recommended in the last Survey (OECD, 2022[24]). To maximise the impact of any increase in the VAT rate, it is key to adopt complementary reforms to enhance collection; otherwise, there would be risk that revenue gains may fall short of expectations. Potential measures include enhanced registration, mandatory e-filing, the introduction of electronic invoicing, which have proven to be very effective in OECD countries, as well as strengthening tax administration capacities (see below). Furthermore, a list of zero-rated VAT items has also been defined in order to offset the impact on the most vulnerable. However, means-tested household support could achieve similar objectives with lower revenue costs. To improve VAT collection, the 2025 Budget bill shortens the submission period for VAT claims and introduces changes to the electronic services regime to address low compliance among domestic and foreign providers. The Bill also addresses VAT challenges in the digital economy by introducing a simplified VAT registration system for offshore companies transacting with South African firms, aligning with OECD recommendations (OECD/WBG/ATAF, 2023[37]).
The corporate income tax (CIT), the third-largest revenue source at 18% of total tax revenues in 2023/24, has declined since the 2008 financial crisis, excluding the commodity boom in 2021-2022. The decline as a share of GDP amounted to almost 3 percentage points over the period (Figure 1.13, Panel C). Although the CIT rate was reduced from 28% to 27% in 2022, it remains higher than the OECD average of 23%. Aligning the CIT rate with the OECD average could boost South Africa's tax competitiveness and support business growth. However, limited fiscal space makes broadening the tax base essential for sustaining and enabling future rate reductions. In 2024, only 549 large companies accounted for 66.5% of CIT revenues (SARS, 2024[38]). A key challenge lies in improving tax collection and closing the 12% compliance gap (OECD, 2022[24]). Limiting the carry-forward of assessed losses and revising deductions for interest and capital expenditures, as recommended in the last Economic Survey, could help reduce the gap. The government is reviewing corporate tax incentives to broaden the CIT base, simplify the system and promote fairness by avoiding sector-specific advantages. South Africa has also enacted the Global Minimum Tax Act, requiring large multinational enterprises to comply with a 15% minimum corporate tax rate. This is expected to support fiscal revenues by curbing tax losses to offshore havens while protecting South African businesses from multinational tax competition.
Property tax revenues, at 1.3% of GDP in 2023, is lower than the OECD average (Figure 1.13, Panel D). Municipalities collect 82%, making it their third-largest revenue source after central transfers and electricity revenues. Shifting taxation further towards property taxes is desirable, as they are broader, less damaging to employment and potentially more equitable. This would also reduce municipalities over reliance on electricity revenues to finance their activities (Chapter 4). Greater reliance on property taxes is currently limited by uneven local government capacity, particularly in rural areas. Supporting municipalities’ administrative capacity building and collaboration between municipalities would help raise collection. Regularly updating valuation rolls remains a challenge for many South African municipalities. Revisiting the “market value” approach to property taxation, which applies tax rates to property market values, may be necessary as smaller municipalities often struggle with general and supplementary valuations (Franzsen, 2022[39]). Technological advances can also help municipalities achieve timely and accurate assessments. There is room for broadening the tax base and increasing taxes on donations and estates (OECD, 2022[24]). Since 2023, individuals with assets over ZAR 50 million must declare their wealth—a valuable step towards understanding national wealth, including residential wealth.
Revenues from environmental taxation are low compared to other countries and could also provide greater incentives to reduce emissions (see Chapter 3). Carbon tax revenues are low due to a low tax rate and allowances that can exempt firms’ carbon tax liability on up to 85-95% of their emissions. There are plans to increase carbon tax rates every year to reach ZAR 462 (around EUR 16.7) per tonne of CO2 equivalent by 2030. However, the government plans to maintain the basic tax-free allowance of 60% of emissions until at least 2030, and there are no plans to reduce the total size of other allowances. Increasing the net effective carbon price to EUR 30 on all fuels that currently face a price below this level could increase tax revenues by around 3.2% of GDP (D’Arcangelo et al., 2022[40]) (Table 1.4). The government has some measures to offset the regressive elements of the carbon tax (see Chapter 3).
Improving the efficiency of the tax administration and reducing tax evasion is key for better tax collection. The SARS, weakened by state capture in recent years, struggles to recruit skilled specialists and upgrade technology. Ongoing reforms aim to improve compliance through digital access, especially through greater use of sophisticated data and Artificial Intelligence tools, simplified tax processes and aligning governance with international standards.
South Africa is still struggling to reduce corruption in the public sector (Figure 1.14, Panel A), which deepens inequalities, wastes public resources and weakens economic growth (OECD, 2024[41]). South Africa has struggled with corruption since its transition to democracy, intensifying over the Zuma presidency, which made “state capture” a household term. State capture is a type of systemic political corruption where formal procedures (such as laws and social norms) and government bureaucracy are manipulated by government officials, state-backed companies, private companies, or private individuals to influence state policies and laws in their favour (OECD, 2022[24]; 2020[25]; IMF, 2023[13]). The State Capture Commission, also known as the Zondo Commission, highlighted serious governance failures and the undermining of legislated procedural checks and balances across ministries, legal enforcement institutions and SOEs, particularly Eskom (electricity, see Chapter 4) and Transnet (freight railways and ports, see Chapter 3). In response to the Commission’s findings, Parliament adopted an implementation plan in November 2022, which is an across-government effort and includes many legislative and institution reforms (The Presidency, 2023[42]).
Note: G20EME is computed as an unweighted average and includes Argentina, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, Türkiye and South Africa. Panel A shows sector-based subcomponents of the “Control of Corruption” indicator by the Varieties of Democracy Project. Panel B shows ratings from the FATF peer reviews of each member to assess levels of implementation of the FATF Recommendations. The ratings reflect the extent to which a country's measures are effective against 11 immediate outcomes. "Investigation and prosecution¹" refers to money laundering. "Investigation and prosecution²" refers to terrorist financing.
Source: Varieties of Democracy Project, V-Dem Dataset v12; OECD, Financial Action Task Force (FATF).
Law enforcement responses to the findings of the State Capture Commission remain slow (OECD, 2022[24]; IMF, 2023[13]). While the Commission recommended the investigation of a number of matters by law enforcement agencies or other regulatory bodies, under 20% of these have progressed to prosecutions and convictions by late 2023 (The Presidency, 2023[42]). On the other hand, South Africa’s National Prosecution Authority (NPA), in cooperation with law enforcement authorities in other OECD Working Group on Bribery countries, have managed to secure restitution from foreign companies that benefited from state capture. Still, more work is needed to conclude investigations and, where appropriate, begin criminal prosecutions and enforce the resulting sanctions for corruption offences, to restore public confidence and encourage the proper functioning of public services.
Law enforcement and prosecution authorities, including the NPA and the Directorate for Priority Crime Investigation have been severely weakened and have not yet fully recovered their capacity and institutional set up (MAPS, 2024[43]). Challenges around coordination within South Africa’s multiple anti-corruption authorities also undermine strong and credible action to implement anti-corruption measures (MAPS, 2024[44]). Some progress has been achieved but challenges persist, including ensuring that anti-corruption authorities have the sufficient financial resources, skilled staff and legal power to successfully operate and ensure their independence (IMF, 2023[13]). While the government increased the budget of the NPA from ZAR 4.5 billion to ZAR 5.406 billion (0.1% of GDP) between 2021 and 2023 (The Presidency, 2023[42]), this amount remains insufficient (IMF, 2023[13]). The government also strengthened the capacity of the NPA with the NPA Amendment Act. It led to the establishment of the Investigating Directorate Against Corruption (IDAC), which focuses on the highest-priority state capture cases, with the authority to have its own investigators. However, the Bill did not reform the financial and administrative independence of the NPA from the Department of Justice, which the government had indicated it would pursue as part of the response to the Commission. Swiftly implementing this additional reform will help South Africa address its corruption and governance deficiencies. Finally, coordination within South Africa’s multiple anti-corruption authorities also undermines strong and credible action to implement anti-corruption measures (MAPS, 2024[43]) and should be improved.
The government passed the Public Procurement Act in 2024, following the State Capture Commission report that found that money was primarily extracted from the state through the abuse of procurement processes. The Act responded to a number of the Commission’s recommendations and provides for a unified framework to the highly decentralised procurement system and increases transparency in processes. Nevertheless, many substantive gaps in the public procurement system remain to be settled in secondary legislation, which is not yet developed and would further reduce the risk of corruption and political interference in public procurement. The 2024 Methodology for Assessing Procurement Systems (MAPS) assessment conducted by the OECD, World Bank and African Development Bank (MAPS, 2024[43]) especially recommends that South Africa:
Reinforce further the regulatory authority of the Public Procurement Office (PPO) and ensure it has sufficient human resources and effective independence;
Increase the use of digitalisation, internal controls and internal audits to detect and prevent corruption; and
Increase the transparency of the procurement system and develop comprehensive financial disclosure rules and clear definitions of conflicts of interest.
Following its Financial Action Task Force (FATF) greylisting, South Africa has addressed many of its strategic deficiencies in its anti-money laundering and terrorist financing (AML/CFT) regime (National Treasury, 2025[16]). The one strategic deficiency remaining is to demonstrate a sustained increase in investigations and prosecutions of serious and complex money laundering and the full range of terrorist financing activities (Figure 1.14, Panel B) (FATF, 2025[45]).
Regulation on lobbying activities
Note: A higher indicator value reflects more regulatory barriers. G20EME is the unweighted average of Brazil, China, Indonesia, Mexico, South Africa and Türkiye. The indicator for South Africa reflects the laws and regulations in force on 1 January 2023. For some countries, the indicator reflects those in force on 1 January 2024.
Source: OECD Product Market Regulation (PMR) database.
Among OECD and G20 emerging-market economies, South Africa has some of the lowest safeguards against potential distortions induced by lobbying activities, which does not create a level playing field for firms (Figure 1.15). South Africa does not regulate the interactions between lobbyists and public officials, there is no public lobbying register and public officials face no disclosure requirements. Additionally, the absence of a mandatory cooling-off period for senior public officials and civil servants heightens risks of a conflict of interest. This lack of regulation can create opportunities for incumbents and well-funded corporations to influence policymakers to create barriers to entry for smaller firms and new entrants. As such, it is essential to identify and address situations where conflicts of interest could arise through regulation and ensure that the interactions and links between policy makers and interest groups are transparent (OECD, 2024[41]).
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