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Arthur Kamp

Investment Economist at Sanlam Investments

Finance Minister Enoch Godongwana’s third Budget Speech this week reflects a familiar outcome as the government’s debt ratio continues to drift higher over the next two years amid a tepid economic growth rate and growing demands for additional expenditure. These pressures have resulted in significant revenue-raising measures aimed mainly at personal income taxpayers over the next three years.

The expected Main Budget deficit for 2023/24 was revised to -4.7% of gross domestic product (GDP), significantly worse than the initial projection of -3.9% published by National Treasury in February 2023. Even so, Treasury aims to reduce the deficit to -3.4% of GDP by 2026/27.

Importantly, the primary budget deficit (revenue less non-interest spending) is forecast to improve from a surplus of +0.4% of GDP in 2023/24 to +1.3% of GDP in 2025/26, which is expected to stabilise the debt ratio at 75.3% of GDP in that year. This is lower than the projected peak of 77.7% of GDP in 2026/27 published in the November 2023 Medium-Term Budget Policy Statement (MTBPS).

The slightly lower debt trajectory is a positive surprise relative to our expectations of some further slippage in the debt trajectory. That said, a larger primary budget surplus may be required to stabilise the debt ratio.

The primary budget balance remains the main signal of Treasury’s intent to return fiscal policy to sustainability. However, Treasury continues to work on a more formal anchor, which ostensibly will include formal mechanisms to increase the probability of hitting the target.


Despite Treasury’s positive intent, Budget execution risk is high and previously identified risks are being realised. Spending on the consolidated government wage bill has been revised higher over the medium term. It is now projected to increase at an average 4.5% of GDP over the next three years, compared with 3.6% projected in the November 2023 MTBPS.

It could be argued this reduces future risks associated with government compensation spending. However, the adjustment is made partially at the expense of consolidated government capital expenditure, which is cut by a cumulative R31.5 billion over the next three fiscal years. Hence, we are not seeing a continued decisive swing towards capital expenditure, which would not only have a more favourable impact on GDP than consumption expenditure but would also help protect the state’s balance sheet.

In addition, even though the social relief of distress grant is not extended beyond 2024/25, South Africa’s dire socio-economic conditions warrant the additional provision (relative to Budget 2023) for social protection spending of R35.2 billion in 2025/26 and R36.8 billion in 2026/27. This suggests the grant will be replaced by another grant for the long term.

Moreover, potential additional transfers to state-owned enterprises, over and above Eskom, still lurk in the background, while Minister Godongwana affirmed the government’s commitment to National Health Insurance (NHI), for which funding costs are likely to be large, if implemented.

Overall, consolidated spending by function is expected to increase at an annual average of 3.9%, which is higher than the average of 3.6% projected in the November 2023 MTBPS.


Treasury’s use of the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) on the balance sheet of the South African Reserve Bank is prudent, resulting in debt servicing cost being slightly lower over the medium term. In consequence, overall consolidated expenditure is projected to grow by an average 4.6% over the medium term, which is in line with the November 2023 MTBPS estimate.

The government will tap into the GFECRA balances, estimated at R507.3 billion in January 2024, in the new fiscal year. The Bank will transfer R200 billion to the government. Of this amount, R100 billion will be placed into a contingency reserve at the Bank to pay for the sterilisation costs associated with the implied monetisation of the balances.

This leaves R100 billion to reduce the gross borrowing requirement for 2024/25 to R457.7 billion from the previous projection of R559.6 billion published in the November 2023 MTBPS. Limited further drawdowns of the GFECRA are proposed for the next two fiscal years, yielding transfers of R25 billion in both years.

The above reflects prudent use of the GFECRA balances in that they are used to reduce the issuance of new debt rather than to fund additional expenditure.

The gross borrowing requirement nonetheless increases to R579 billion in 2025/26, in part reflecting an increase in transfers to Eskom from R64.2 billion in 2024/25 to R110.2 billion in 2025/26, before easing to R428.5 billion in 2026/27 with no further transfers to Eskom in the latter year.


The bad news is that in a constrained growth environment in which Treasury expects average real GDP growth of just 1.6% over the next three years, the fiscal authorities turned to additional revenue-raising measures to help stabilise the debt ratio.

First, the implementation of the global minimum tax on companies was announced – this aims to ensure that multinationals with annual revenue of more than €750 million are subject to an effective tax rate of at least 15%, regardless of where profits are located. This is expected to increase government revenue from 2026/27 (yielding R8 billion in that year). An electric vehicle tax incentive partially offsets this, but only costs the fiscus R0.5 billion in 2026/27.

Further, personal income tax revenue-raising measures are material. The Budget indicates there will be no inflationary adjustment to tax brackets and rebates, or for medical tax credits over the next three fiscal years. This effectively increases personal income tax by a cumulative R58.2 billion relative to the previous medium-term projection. At least there is some relief in that the general fuel levy is not increased over the next three years, although excise duties are increased.


Overall, Budget 2024 continues to highlight the daunting task of stabilising the government’s debt ratio against the backdrop of slow revenue growth and increasing expenditure demands. The latter cannot easily be curbed given South Africa’s depression-level unemployment rate and continued support to ailing state-owned enterprises. This serves to highlight the importance of implementing economic reforms and lifting the potential GDP growth rate to balance the fiscal books.

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