By Simon Nare
Finance Minister Enoch Godongwana has warned of government’s ever rising debt, as he forecast GDP growth of 1.1% in the current financial year, while over the medium-term growth is estimated to average 1.8.%
Delivering his medium-term budget in the National Assembly on Wednesday, Godongwana revealed the forecasted growth for the current year was lower than predicted in February.
Godongwana warned that government debt has risen too fast and was too high. It was also rising faster than economic growth.
“We are anticipating that government debt will reach more than R6.05 trillion, or 75.5% of GDP in 2025/26. We know that our debt is unsustainable, because debt-service costs have become the largest component of our spending and it is rising faster than economic growth.
“Debt service costs will reach R388.9 billion in the current financial year,” he warned.
The minister explained that this simply meant that for every rand of the revenue that the government raised this year, 22 cents of it was servicing debt.
He added that to mitigate this problem, the government has had to take difficult steps to reduce the budget deficit, including restraining spending and maintaining a stable tax collection.
As a result of these measures, government achieved a primary budget surplus in 2023/24, for the first time in 15 years.
“The primary surplus will be sufficient for debt to stabilise at 75.5% in 2025/26. Debt will then decline over the rest of this decade. The key impact of this is that debt service costs will also stabilise and begin to decline over the next few years,” he said.
In his revenue adjustments and medium-term outlook, Godongwana said tax revenue for 2024/25 was expected to be R22.3 billion lower than what was estimated in February.
Further, in the next two years, the main budget revenue estimate has also been lowered by R31.2 billion. Due to slow growth and external risks, tax revenue will remain under pressure.
“Lower revenue also means that we cannot, within the envelope, accommodate all of the demands on the fiscus. Difficult trade-offs, in all spheres of government, will have to be made.
“By sticking to our debt-reducing strategy and confronting these trade-offs, we can create the necessary conditions for a fast-growing economy that facilitates employment,” he said.
In the budget allocation, he said government proposed allocating 47.9% of available non-interest spending to national departments, 42.3% to provinces and 9.8% to local government in 2025/26.
Godongwana was optimistic that despite weaker revenue, the most immediate spending pressures would be addressed.
He announced increased expenditure mainly for the following:
• Rollovers from the previous financial year to the value of R2.1 billion
• R2.7 billion expenditure that was announced at the time of the main budget, mainly for the Covid-19 social relief of distress grant
• Unforeseeable and unavoidable expenditure of R2.1 billion, mainly for disaster relief.
• A special appropriation bill that mostly covers Sanral’s obligations related to phase 1 of the Gauteng Freeway Improvement Programme. A large part of this appropriation is made possible by the Gauteng government honouring its R3.8 billion contribution to the debt this year.
The minister added that over the medium term, consolidated expenditure was expected to increase from R2.4 trillion in 2024/25 to R2.8 trillion in 2027/28.
“Our democracy is underpinned by strong independent arms of the state. The medium-term spending adjustments are aimed at maintaining the integrity of key institutions and improving state capability.
“It seeks to build a capable state that delivers a reasonable and reliable standard of public service that will foster the necessary environment for more growth and jobs.
“For this reason, additional funding is proposed for Parliament and the Office of the Chief Justice, mostly to enhance operational capacity in the running of these important institutions,” he proposed.
Other institutions to get additional funding are the Independent Electoral Commission to prepare for the 2026 local government elections and the SA Revenue Service to enhance efficiencies to collect tax.
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