A cold reality check in the Medium Term Budget Policy Statement
By Chris Hattingh
THE recently presented 2024 Medium Term Budget Policy Statement (MTBPS) by Finance Minister Enoch Godongwana paints a sobering picture of South Africa’s fiscal outlook.
As a national budget often mirrors the health of a country’s economy, this MTBPS reflects South Africa’s precarious economic situation.
With growth expectations pared back and debt projections rising, the MTBPS has dampened the wave of optimism that initially followed the establishment of the Government of National Unity (GNU).
If the government maintains the debt targets set by the National Treasury, it could reinforce fiscal credibility. However, whether all GNU partners are prepared for the tough political choices required to boost growth remains an open question.
A downgraded growth forecast
In the MTBPS, the National Treasury has taken a more cautious approach to GDP growth, lowering its 2024 forecast from the February Budget’s 1,3% to 1,1%. For the 2025–2027 period, growth is expected to average only 1,8%.
On the other hand, the debt-to-GDP ratio forecast has worsened. In February, treasury projected a 2024/25 debt-to-GDP ratio of 74,1%, but the latest update raises this to 74,7%. A peak of 75,5% is now anticipated in 2025/26, with a slight decline projected from 2026/27. Currently, 22 cents of every rand collected by the government goes towards debt servicing.
Budget shortfall due to lower revenue
On the revenue front, estimated tax revenue for 2024/25 has fallen by R22,3-billion since the February Budget forecast, contributing to a widened deficit, now expected to reach 5%, up from the initial 4,5% projection.
Compounding fiscal pressures are ambitious government spending initiatives such as National Health Insurance, a Basic Income Grant, public sector wages, and ongoing financial support for struggling state-owned enterprises (SOEs) like Transnet.
For now, treasury is resisting additional bailouts for SOEs. However, should Transnet’s performance not improve, further financial support may become inevitable.
Fiscal challenges at the municipal level
As the next Local Government Elections approach, many South African municipalities face severe financial constraints.
Ratepayers are under immense pressure, and those municipalities that manage to meet their commitments to entities like Eskom are likely to see revenue growth constrained in the short-to-medium term.
National government assistance is also unlikely to increase in the near future, meaning that provincial budgets and local government services are likely to feel the strain.
Anchoring inflation expectations amidst declining inflation
With annual consumer inflation down to 3,8% in September—the fourth consecutive monthly decline—the Finance Minister’s remarks on “anchoring inflation expectations” are noteworthy. South African Reserve Bank Governor Lesetja Kganyago has suggested lowering the Bank’s inflation target to a fixed 3%, down from the current target range of 3% to 6%. Treasury’s openness to exploring this shift with the Reserve Bank could indicate a new approach to inflation control.
Debt servicing burden
Given the huge amount spent on servicing debt, reducing this debt load is crucial. But this is easier said than done, as achieving meaningful economic progress is contingent on the government making tough political, policy, and legislative decisions.
This initial budget under the GNU lays a foundation, but mini boosts alone won’t sustain South Africa’s economic recovery. The key to long-term success lies in sustained efforts and difficult choices to turn recent market optimism into tangible
economic gains.
