EEMEA Strategy Viewpoint: EEMEA ASW spreads have room to tighten

Research evidence excerpt

EEMEA Strategy Viewpoint: EEMEA ASW spreads have room to tighten

South Africa

Stronger fiscal surplus, softer risks

South Africa's National Treasury reports stronger near-term fiscal performance, with a

Fiscal Year (FY)25/26 primary surplus of 1.1% of GDP (versus 0.9% baseline), driven by

modest revenue upside and underspending. The framework is anchored by debt

stabilisation in 2025/26 and a 2% primary surplus over time, effectively acting as a de

facto fiscal rule, with formal fiscal anchors set to be announced in October.

The energy shock response (fuel levy relief costing South African Rand (ZAR)17bn April

to June 2026) is deficit neutral, funded through revenue overperformance and spending

undershoots, reflecting improved buffers. On revenues, South African Revenue Service

(SARS) collections are tracking above baseline (early signs from April-May data), with

upside risks from conservative commodity price assumptions. On spending, risks are

contained due to a fixed three-year wage deal, lower social grant outlays from stricter

verification and contingency reserves.

On State-Owned Enterprises (SOEs), Eskom's financial position has improved

significantly (profitability restored, debt relief ongoing). We do not expect any further

bailouts and no near-term market issuance until the relief programme concludes in

2028/29 when a final disbursement of ZAR10bn is due. Transnet is also covered by

guarantees and project funding, limiting new borrowing needs.

The broader macro fiscal backdrop is gradually improving, supported by structural

reforms (energy, logistics) boosting business confidence, while downside growth risks

are partly offset by commodity dynamics. Potential upside could also come from

GFECRA transfers, depending on SARB buffer assessments. On funding, no major