This persistent discrepancy, as noted by Finance Minister Enoch Godongwana during the October 2024 Medium-Term Budget Policy Statement, may hinder the government's ability to stabilize its financial footing amidst rising debt levels. Picture: Ayanda Ndamane / Independent Newspapers
South Africa’s economic landscape is bracing for a challenging fiscal period, with government revenue and expenditure gaps projected to stay above 4% of gross domestic product (GDP) for the 2025/26 financial year.
This persistent discrepancy, as noted by Finance Minister Enoch Godongwana during the October 2024 Medium-Term Budget Policy Statement, may hinder the government's ability to stabilize its financial footing amidst rising debt levels.
Nedbank economist Isaac Matshego anticipates that Godongwana will present a more optimistic economic outlook in the forthcoming budget speech, boosted by favourable weather conditions and an improved electricity supply.
These factors, coupled with subdued inflation rates and reasonable global demand, create a conducive environment for economic growth.
However, Matshego warns that significant downside risks linger, primarily due to the looming threat of an escalating trade war involving the United States and its trading partners.
Matshego highlighted that while gross tax collections for the 2024/25 fiscal year are expected to surpass estimates from the previous 2024 Medium-Term Budget Policy Statement, they will still fall short of the 2024 Budget projection by over R20 billion.
A notable increase in personal tax revenues, spurred by the two-pot retirement fund withdrawals, is anticipated, along with lower anticipated company taxes. Meanwhile, debt service costs have risen at a lesser rate than projected, indicating some positive movement in government expenditure management.
Despite these encouraging signs, the spectre of rising public sector wage settlements poses a considerable challenge to the Medium-Term Expenditure Framework (MTEF) planned for 2025/26 to 2027/28.
The consolidated budget deficit is expected to narrow slightly from 4.5% of GDP in 2023/24 to 4.4% in 2024/25, exceeding the 5% target outlined in the MTBPS, as stronger revenue growth aligns with an increasing nominal GDP. Additionally, the primary surplus is expected to show incremental growth over this period.
Nevertheless, the challenges remain significant. The budget deficit for the 2024/25 fiscal year has increased by R34.7bn compared to initial 2024 budget estimates, primarily attributed to poorer revenue performance.
Godongwana reassured that despite this setback, projections indicate a gradual narrowing of the budget deficit—from a projected 4.7% of GDP in 2024/25 to 3.4% by 2027/28. This trajectory aims for a primary budget surplus sufficient to stabilize rising debt levels.
As it stands, government debt is projected to stabilize at 75.5% of GDP in 2025/26, a necessary step to address burgeoning debt-service costs, which are expected to peak at 21.7% of revenue.
This year, debt-service costs have already surged to R233.1bn, reflecting a 5.8% increase from the previous year; however, this remains below the Treasury’s anticipated growth of 9.2%.
Furthermore, while the Treasury’s fiscal projections remain slightly more optimistic regarding debt peaks, with an anticipated 75.5% by the next fiscal year, FNB economists contend that debt might reach a peak of 77.7% of GDP by 2027/28.
Despite potential favourable economic conditions, it will be crucial for the government to maintain disciplined non-interest spending to avert exaggerated debt accumulation.
In summary, while some optimistic indicators suggest a stabilisation of South Africa’s economic outlook through strategic adjustments, the journey ahead is fraught with fiscal challenges that will demand keen oversight and responsive management from the government.
The upcoming budget announcement will be pivotal in shaping public confidence and ensuring that South Africa navigates through these testing times.
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