South Africa is due for some tough times as economic realities start to bite. Close to 30 years of inefficient management of the economy by the ANC has resulted in Finance Minister Enoch Godongwana’s recent warnings about the necessity for the government to tighten its fiscal belt and implement budget reductions due to lower-than-expected revenues have materialized in his austere mid-term budget address on Wednesday. To most sane commentators this looks like bolting the stable door after the horse has bolted, but hey this is South Africa.
The predictability of these measures did not diminish the clarity of his message: budget cuts are impending.
“In his budget speech, Godongwana emphasized that our public finances are considerably weaker,” he stated. He further disclosed that the primary budget deficit had swelled by R54.7 billion when compared to the 2023 main budget projections. National Treasury’s DG, Duncan Pieterse, confirmed that the mid-term budget shortfall amounts to R56.8 billion in contrast to the initial February budget.
Aside from the overall austerity tone, the most notable revelation in MTBPS 2023 and the budget speech was the prolongation of the Social Relief of Distress (SRD) grant for an additional year, which will entail an extra cost of R34 billion for the government.
Additional salient points from the budget speech include:
- South Africa’s main budget deficit prognosis for 2023 has deteriorated, now standing at 4.9% of GDP compared to the 4% estimation made in the February budget.
- Over the medium term, South Africa will need to secure an average annual borrowing of R553 billion.
- The gross debt is slated to surge from R4.8 trillion in the current fiscal year to R6 trillion in 2025/26.
- Debt-servicing costs, as a fraction of revenue, will rise from 20.7% in 2023/24 to 22.1% in 2026/27.
- There have been spending revisions, with a decrease of R21 billion for the ongoing fiscal year and proposed reductions of R64 billion in 2024/25 and R69 billion in 2025/26.
- There were no announced bailouts for entities like Transnet or other state-owned enterprises (SOEs) such as Eskom, Denel, or SAA.
- An additional R24 billion has been allocated for the 2023/2024 public sector wage increase, which is notably lower than the R37 billion figure cited by Godongwana in May. This increase will be focused on essential departments like education, health, and policing/defense, with other departments expected to absorb the additional costs, as per National Treasury’s guidance.
- There is a commitment to fast-tracking ‘growth-enhancing’ reforms previously announced by President Cyril Ramaphosa, although the specifics of a new financing mechanism for large infrastructure projects have yet to be revealed.
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