BLSA commends Finance Minister Enoch Godongwana on a solid budget delivered with strained resources, striking a good balance between fiscal discipline and directing revenue to areas that will boost economic growth over the long term.

This was achieved with lower-than-expected tax revenue – R22.3bn less than expected in February, with lower projections for future years. He said this meant difficult decisions had to be made. “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.”

That consistent adherence to fiscal discipline has been recognised internationally and remains a very important tick on the “pros” list when investors assess the country’s investment potential.

Nevertheless, the economy continues to underperform, with NT trimming its GDP growth forecast for the current year from 1.3% to 1.1%. Only economic growth can generate fiscal sustainability and social upliftment for South Africans.

National Treasury’s “four pillars” strategy to lift the economy to a higher and more inclusive growth path is particularly encouraging, reflecting priorities that will contribute to that economic growth. The four pillars are:

1. Maintaining macroeconomic stability by maintaining a stable, transparent and predictable macroeconomic framework with work continuing on “assessing the suitability of monetary policy targets and to improve the levers of macroeconomic policy coordination”. BLSA believes such predictability enables households, businesses and investors to make informed decisions.
2. Implementing structural reforms. This is paramount; the network industries of energy, transport and water need to be operating efficiently, which will provide a strong foundation to enable wider economic growth. Minister Godongwana listed past successes, acknowledging the important role of Operation Vulindlela and the government-business collaboration in driving the reforms.
3. Supporting growth-enhancing infrastructure. BLSA is a little sceptical here, given unfulfilled promises of accelerating infrastructure developments, stretching deep into the past, but the minister did announce that NT was implementing reforms to attract greater private sector participation, including “mobilising significant private sector financing and technical expertise to augment the limited public sector capacity and capability”. That is something BLSA has long called for because such expertise is needed in the public sector, from the top national echelons all the way down to local government level, where municipalities are often central to infrastructure development in their jurisdictions. He promised that amendments to private-public partnerships (PPPs) would be published before end-November, for implementation next fiscal year; and municipal PPP regulations would be finalised by June next year. If that is achieved, it will be an important step in getting infrastructure projects to shovel-ready status.
4. Building state capability. The sub-optimal capacity of the state is an area of extreme concern. The minister announced additional funding for the IEC, Parliament and the Office of the Chief Justice, mostly to enhance operational capacity, and for SARS to “build on its successes” to enhance revenue collection. He said initiatives were also in place to reduce the size of the workforce and introduce younger talent to the public service. Given the increasing onus on municipalities to deliver on important reforms in water delivery, in the energy sector, particularly regarding wheeling arrangements, and other important areas of service delivery and infrastructure development, BLSA would have welcomed a programme to address local government deficiencies. Operation Vulindlela is, however, focusing on this area in its next phase of reforms.

BLSA CEO Busisiwe Mavuso said: “Whereas the four pillars constitute a necessary foundation for growth and sustainability, BLSA remains concerned about the risks to the fiscal and growth outlook, ranging from potential international economic and geopolitical headwinds, a higher than expected public sector wage agreement, and further bailouts to “too big to fail” SOEs like Transnet, that remain.

“While it is comforting that Treasury is aware of what needs to be done, it is also clear that there is precious little space for error in our fiscal and economic calculations. If even a little goes wrong, our fiscal outlook looks set to be brittle indeed.”

Fiscal outlook
Minister Godongwana stated that debt service costs – the largest component of spending – were rising faster than economic growth and anticipates that government debt will reach more than R6-trillion, or 75.5% of GDP, in 2025/26. This is not far out of kilter with the forecast of 75.3% in February’s Budget but is still a significant increase from the debt:GDP ratio of 74.6% recorded in the second quarter of this year.

What’s important is for debt to peak at this level. “To deal with this problem,” he said, “we have taken difficult steps to reduce the budget deficit. We have restrained spending and maintained stable tax collection. As a result of our measures, government achieved a primary budget surplus in 2023/24, for the first time in 15 years.”

Over the medium term, the main budget deficit would decline from 4.7% of GDP in 2024/25 to 3.4% in 2027/28, with the primary budget surplus rising to 1.8% of GDP. He said 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.”

 

Overall, BLSA believes National Treasury has prioritised the most important areas to address the deficiencies in our network industries. While there is nothing dramatic or new in this MTBPS, BLSA looks forward to the February budget for more detail particularly for facilitating PPPs, which is needed to accelerate the important infrastructure development needed to establish a strong foundation for future economic growth. BLSA also looks forward to a whole of government approach in making the assumptions underpinning the MTBPS a reality, and to government showing the necessary discipline and courage to maximise value for money and return on investment in all aspects of government spending.