In his Medium-Term Budget Policy Statement (MTBPS), Finance Minister Enoch Godongwana was at pains to say all is not doom and gloom even as he conceded that the country would need a staggering R500 billion a year to cover its debt servicing costs.
With a shortfall in revenue from corporate taxes especially taxes from mining, a decline in commodity prices, a high public wage bill, Godongwana tried against all odds to protect the most vulnerable by extending the R350 Covid-19 social relief grant by another year until March 2025.
Government spending has exceeded revenue since the 2008 global financial crisis, Godongwana told Parliament. These rising annual budget deficits have reached an extent where the government will have to borrow an average of R553 billion per year over the medium term, he said.
“As a result, gross debt rises from R4.8 trillion in 2023/24 to R5.2 trillion in the next financial year. By 2025/26, it will exceed the R6 trillion mark.
“We now expect gross government debt to reach 77 per cent of GDP by 2025/26. This is higher than the level we forecast in February”.
Godongwane said the economic outlook over the medium term remains weak, reflecting the cumulative effect of power cuts, the poor performance of the logistics sector, high inflation, rising borrowing costs, and a weaker global environment.
He kicked off his speech by giving a glossary of the International Monetary Fund forecasts global growth to slow from 3.5% in 2022 to 3% in 2023 and 2.9% in 2024.
The weaker growth outlook for China, South Africa’s largest trading partner; the lower commodity prices; and the risk that the US interest rates will remain higher for longer, means the global economic environment is less supportive of South Africa’s growth prospects.
On the domestic front, he forecasts a 0.8% growth in real GDP in 2023. This is 0.1 percentage points lower than the growth projection at the time of the 2023 Budget. Growth is projected to average 1.4% from 2024 to 2026.
“These growth rates are not sufficient to achieve our desired levels of development. However, our economy has shown signs of resilience.
“Real Gross Domestic Product, a measure of economic performance, is now above pre-pandemic levels. In the first half of the year, the economy grew by 0.9% despite record levels of loadshedding.
“The tourism sector grew more than 70% in the period, driven by the arrival of more than 5.4 million international tourists.
“This year we hosted the Formula-E, the BRICS Summit, the Netball World Cup 2023, and this week we welcomed up to 700 delegates to the 20th AGOA Forum in Johannesburg.
“We have put our best foot forward and reminded the world of the beauty of our country, the warm spirit of our people, and the world class facilities for doing business and investing”.
Speaking outside Parliament after his speech, Godongwana said we are not facing a fiscal crisis yet because there are some sectors of the economy that have shown resilience and signs of growth in the first six months of the year including:
- The construction sector grew by 4.2 per cent;
- The agriculture sector grew by 7.8 per cent; and
- The services sector is up 1.5 per cent.
“In the words of the President, these are the reasons for hope.
Government has made a strategic decision to allocate funds to frontline sectors such as Health, Education and Police Services.
“Additional funding of R24 billion this year and R74 billion over the medium term will be used to fund the 2023/24 wage increase and the associated carry through costs in these sectors.
“R34 billion is allocated to extend the Covid-19 Social Relief of Distress grant by another year. Over the medium term, a provisional allocation is retained while a comprehensive review of the entire social grant system is finalised.
“The presidential employment initiative will be extended for another year through repurposing of a portion of funds from existing public employment programmes such as the Expanded Public Works Programme and the Community Works Programme. A comprehensive review of public employment programmes is underway”.