‘Out of every R5 collected in main budget revenue, R1 is paid to lenders. These rising debt-service costs now take a bigger share of the budget than basic education, social protection and health,’ Godongwana said.
Some key highlights from the recent Medium-Term Budget Policy Statement presented by Finance Minister Enoch Godongwana:
Revenue Shortfall: A significant revenue shortfall of R56.8 billion in the current fiscal year, mainly due to lower commodity prices and unexpected VAT refund claims.
Spending Cuts: Finance ministry takes action by cutting state spending by R85 billion and accelerating efforts to stimulate economic growth through private sector involvement and addressing issues with state-owned enterprises like Eskom and Transnet.
Budget Surplus Objective: Finance Minister Enoch Godongwana aims to achieve the country’s first Primary Budget Surplus since 2008, excluding interest payments. This move is viewed as a modest step forward.
COVID-19 Relief Grant: Despite funding uncertainties, the government extends the politically charged COVID-19 social relief grant.
Borrowing Plans: The government plans to borrow an average of R554 billion annually to cover budget deficits, debt redemptions, and the Eskom bailout.
Debt-to-GDP Ratio: The debt-to-GDP ratio is projected to rise to 77.7% in 2026, primarily due to the 2023 public wage service agreement and a decline in mining sector tax revenues.
Deficit Projection: The deficit is expected to reach 4.9% of GDP in 2023/24, with the gross loan debt expected to stabilize at 77.7% of GDP by 2025/26.
Reduced Spending: Treasury has reduced spending by R21bn in the current financial year and further reductions of R64bn in 2024/25 and R69bn in 2025/26 are proposed.
Economic Growth Challenges: South Africa’s economic growth outlook remains weak, and the nation remains susceptible to external economic shocks.
Key Challenges: Challenges such as power cuts, inadequate rail transport, inflation, and rising borrowing costs are hindering economic expansion.
In summary, South Africa’s fiscal difficulties are rooted in a history of weak economic growth and persistent budget deficits dating back to the 2008 global financial crisis.
