A few years ago, the government came to a fork in the fiscal road. One path was reckless, the other signposted fiscal prudence supportive of inclusive growth and development. We chose the latter. In the 2020 medium-term budget policy statement (MTBPS) we set out a tough but necessary multiyear journey to restore the health of our public finances. Fiscal consolidation was announced with a combination of higher revenues and restraint on spending, while shifting the composition of public spending from consumption to capital investment.
South Africa’s public resources have been under strain for more than a decade. Our economy is plagued by poor capital investment, electricity shortages and declining logistics performance. As a result, economic growth averaged 0.8% since 2012, well below the rate of population growth. Over the same period, government borrowing ballooned to support rapidly rising expenditure. As a result, debt-service costs have begun to choke both the economy and the ability of the government to fund critical public services.
The budget tabled by finance minister Enoch Godongwana on Wednesday is consistent with the strategy first introduced in 2020, with an added reform agreed with the South African Reserve Bank. The budget is primarily designed to achieve economic development through stable public finances. It confirms that the National Treasury is still on track to achieve its fiscal goals. Notwithstanding the very difficult conditions in 2023, the consolidated fiscal deficit is projected to decline from 4.9% of GDP for the financial year ending next month, to 3.3% in financial 2026/27. A primary surplus will be achieved in financial 2023/24, rising as the debt-to-GDP ratio stabilises in financial 2025/26 and then begins to fall.
Given the size of our infrastructure needs, we are introducing various reforms to strengthen the role of the private sector to help the government address those needs
This budget presents a carefully balanced form of fiscal consolidation. It increases revenue, then keeps spending under control while making sure that the additional revenue is directed towards key services. The result is that the revenue outlook over the next three years has been revised up by R45.6bn relative to the 2023 MTBPS.
This budget presents a carefully balanced form of fiscal consolidation. It increases revenue, then keeps spending under control while making sure that the additional revenue is directed towards key services. The result is that the revenue outlook over the next three years has been revised up by R45.6bn relative to the 2023 MTBPS. Even though there are weaker growth projections in many tax bases, the tax proposals in this budget and long-term reforms under way, improve the revenue outlook. On the expenditure side, 60.2% of government spending will continue to be spent on the social wage (health, education, social protection, community development and employment programmes). Proposed additional spending of R18.6bn in financial 2024/25, R19.2bn the following year and R19.8bn the next will ensure that the salaries of teachers, nurses, doctors, police and many other public servants are catered for. Spending on social transfers will rise from R283.4bn in the financial year now ending to R331.5bn in financial 2026/27.
The budget avoids additional bailouts to state-owned entities (SOEs), which have reduced our ability to fund core service delivery areas. While risks remain of further financial difficulties for these entities, there are alternatives available. Transnet, for example, received a borrowing guarantee of R47bn, but no further cash injections are envisaged for this or other SOEs. The message is clear: SOEs need to take greater responsibility to ensure their financial stability. They cannot continue to repair their balance sheets by consuming resources meant for the most vulnerable South Africans. A noteworthy aspect of the budget is that transfers to departmental agencies and accounts are reduced by 4.9% over the next three years.
As a result of the measures implemented since the 2021 budget, the budget deficit, which is the amount the government has to borrow to cover the gap between spending and revenue, R550.6 billion in 2020/21 to R331.4 billion in 2023/24. The deficit will continue to narrow over the medium term.
In this budget we have also announced a reform of the gold & foreign exchange contingency reserve account (GFECRA). A new settlement arrangement is being introduced that will reduce government borrowing and improve the Reserve Bank’s equity position. Ultimately, we are bringing South Africa closer to our peers and ensuring alignment with international best practice. We will draw down R150bn of the GFECRA balance over the medium term once we have ensured that sufficient buffers are available to absorb exchange rate swings and the solvency of the Bank is not compromised.
Lower borrowing is good for the economy. Debt as a percentage of GDP will peak at 75.3% in 2025/26 compared with 77.7% at the time of the MTBPS. A lower-debt path means a lower risk premium, higher confidence and more investment.
As a result of the measures implemented since the 2021 budget, the budget deficit, which is the amount the government has to borrow to cover the gap between spending and revenue, declined from R550.6bn in financial 2021 to R331.4bn in the year now ending
To chart a sustainable long-term path for public finances, the government will, after extensive consultation, propose a binding fiscal anchor. This will secure the benefits of fiscal consolidation and ensure that permanent fiscal imbalances do not reappear in a way that requires painful future adjustments.
Stabilising debt is only part of the equation. To grow faster and create jobs, South Africa needs substantial investment. Payments for capital assets increase 10% annually over three years, driven mainly by strong budgets for transport and water infrastructure. Overall public sector infrastructure investment reaches a total of R943.8bn, including investments by state entities. This is an important achievement when one considers the targets announced in the 2020 MTBPS. If key reforms are implemented successfully — including by addressing load-shedding and improving rail and port performance — a strong fiscal position acts as a major pillar for sustaining growth and job creation over time.
Given the size of our infrastructure needs, we are introducing various reforms to strengthen the role of the private sector to help the government address those needs. We intend to reduce waste and inefficiency in infrastructure delivery, improve the quality of our project pipeline and increase the impact of public investment on growth. We will consolidate the financing, preparation and planning arrangements for large projects into a single entity to crowd-in private-sector finance and expertise and increase the use of public-private partnerships to deliver infrastructure projects. We are also introducing several new financing instruments, such as infrastructure bonds and concessional loans, to ensure that our infrastructure financing needs are met.
The 2024 budget therefore strikes a careful balance between the urgent demands of national development, the imperative of better growth outcomes through infrastructure investment and a continued focus on structural reforms and sustainable public finances.
• Sishi is deputy director-general of the Treasury’s budget office
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