South Africa’s Fiscal Challenges and Economic Resilience

The National Treasury of South Africa’s mid-term assessment paints a concerning picture of the country’s fiscal health. It foresees larger budget deficits and escalating debt over the next three years, prompting the Finance Minister to consider tax measures for additional revenue in 2024.

Chronic challenges plague the nation, notably recurring power outages due to Eskom’s coal-fired power facility problems and underperformance by the state-owned logistics enterprise, Transnet. These issues have hindered economic growth for a decade, resulting in reduced tax receipts and declining mining revenue as commodity prices fall. Revenue projections for the current fiscal year (2023–24) are 56.8 billion rand (USD 3.04 billion) below the February 2023 budget.

To stabilize public finances, the Treasury prioritizes reduced spending, modest tax revenue initiatives, and government-wide efficiency measures, including the consolidation or closure of public entities.

In response to the substantial fiscal consolidation needed, the Finance Minister will propose tax measures to generate an extra 15 billion rand in 2024/25.

South Africa’s economic outlook is less optimistic, with GDP growth expected to reach only 0.8% in 2023, down from the 0.9% forecast in February. A larger consolidated budget deficit of 4.9% of GDP is anticipated for 2023–2024, compared to the 4.0% in February. The Treasury predicts a 4.6% GDP deficit in the following year and a 4.2% GDP deficit the year after that.

The country’s gross debt is projected to rise significantly, reaching 6.52 trillion rand in 2026–2027. Although it is expected to stabilize at 77.7% of GDP in 2025–2026, it is a notable increase from the 73.6% in February.

Finance Minister Godongwana highlighted external challenges, including weak growth in China and global interest rate risks. The South African economy shows signs of resilience, with real GDP surpassing pre-COVID levels, but challenges persist.