From fiscal sustainability to infrastructure bankability

Over R1 trillion in public infrastructure spending is planned across the medium term, but bankability depends on contractual frameworks, not aggregate allocations.

Finance Minister Enoch Godongwana's 2026 National Budget confirms fiscal consolidation progress: Treasury projects debt peaking at 78.9% of GDP this year before declining, with the primary surplus widening to 2.3% by 2028/29, and the first rating upgrade in 16 years validates improved discipline. But sustainability depends on containing persistent risks, particularly State-Owned Entity (SOE) contingent liabilities that could undermine the debt trajectory.

But a stabilising debt trajectory doesn't guarantee infrastructure delivery. What matters for institutional investors is whether projects are structured to attract private capital at scale. The budget reveals an infrastructure financing architecture taking shape through actual implementation mechanisms, not just spending commitments.

Municipal infrastructure reform

The most significant structural reform is the R27.7 billion performance-linked grant for electricity, water, sanitation and solid waste services in metropolitan municipalities. This isn't another conditional grant - it's a fundamental governance intervention requiring municipalities to ring-fence revenue and reinvest in the services that generate it. Johannesburg collects R11.9 billion in water revenue but allocates only R1.3 billion to Joburg Water for capital expenditure, contributing to a R64 billion maintenance backlog. The new framework makes continued funding contingent on meeting reform targets, with budget reductions for failure to comply. This establishes necessary fiscal discipline but doesn't yet make municipal infrastructure investable - governance fundamentals must exist before performance-based institutional capital can follow.

This demonstrates what bankability implementation actually looks like: clear obligations, measurable performance targets and enforceable consequences. It addresses the revenue diversion problem that has created infrastructure backlogs across metropolitan municipalities while establishing the fiscal discipline needed before private capital can participate.

Infrastructure financing mechanisms

Government's Budget Facility for Infrastructure has approved R21.9 billion for projects since shifting to quarterly windows, with an R11.8 billion infrastructure bond issued in 2025 to co-fund approved projects. This establishes infrastructure debt as an investable asset class beyond traditional economic infrastructure.

Public-private partnership (PPP) momentum is building after years of dormancy. Sixty-three projects are in the pipeline, with six border posts expected to reach financial closure later this year - the first major PPP transactions to close in more than five years. Regulatory reforms have streamlined approval processes and clarified institutional roles, with municipal PPP regulations to be finalised by mid-year.

SOE risk

The sustainability of this fiscal consolidation depends critically on SOE reform. While the budget maintains a hard line against major bailouts, the persistent inability of Eskom and Transnet to access capital markets without government guarantees creates ongoing contingent liability risk.

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Each guarantee request threatens the debt stabilization trajectory and crowds out infrastructure financing capacity. Until these entities achieve operational and financial independence, SOE fiscal pressures remain the primary risk to the infrastructure investment framework.

Transmission independence: still at design stage

On transmission infrastructure, Treasury and the World Bank are advancing the Credit Guarantee Vehicle (CGV) toward incorporation in coming months, with operational status targeted for later in 2026. The CGV will support what the budget describes as "massive investments in transmission infrastructure". However, the underlying transmission company structure remains at early stages.

While SONA committed to an independent transmission company that owns its assets, the Budget Review reveals a dedicated task team has been established to create a fully independent state-owned transmission entity. Asset transfers, debt allocation, governance frameworks and tariff certainty mechanisms remain undefined.

The contrast is instructive. Municipal reform shows implementation architecture: revenue ring-fencing, performance criteria, funding consequences. The CGV shows genuine progress on enabling mechanisms. But transmission independence, despite SONA prominence, still lacks the contractual detail that determines whether policy translates to bankable opportunity.

What makes infrastructure investable

Fiscal consolidation has been achieved through disciplined expenditure management and revenue resilience. Infrastructure delivery now depends on whether spending translates into projects with clear legal frameworks, appropriate risk allocation and predictable cashflows. Some mechanisms are advancing with implementation detail. Others remain policy commitments awaiting the structural architecture that makes them investable.

For institutional investors, the question isn't whether government has fiscal space for infrastructure. It's whether projects are designed with the governance certainty, contractual protections and revenue frameworks that retirement fund mandates require. Fiscal space is necessary but insufficient. Bankability flows from implementation.