The Treasury will achieve a primary budget surplus in 2023/24 with debt stabilising by 2025/26, finance minister Enoch Godongwana said at a media briefing before delivering the 2024 budget speech on Wednesday.
“This year, for the first time since 2008/09, the government will achieve a primary budget surplus — meaning revenue exceeds non-interest spending,” Godongwana said.
“Over time, as the debt burden decreases, maintaining this critical benchmark will create fiscal space.”
Treasury’s fiscal strategy aims to lower the risk premium, bolster investor confidence and increase the appetite for domestic assets, which will also support the rand.
When these measures are properly achieved, it helps reduce price pressures resulting from a weaker currency, especially in consumption staples such as food and fuel, providing relief to poor households.
In his budget presentation to parliament, Godongwana said the primary budget surplus was made possible by a distribution totalling R150bn from the Gold and Foreign Exchange Contingency Reserve Account over the medium-term expenditure framework period.
“We have taken the decision to introduce a reform of the [account],” Godongwana said.
“Taken together, even with the spending increases I will announce later, the national government gross borrowing requirement will decline, from R457.7bn in 2024/25 to R428.5bn in 2026/27.”
Godongwana said compared with a year ago the budget deficit for 2023/24 is estimated to worsen from 4% to 4.9% of GDP. He said the higher budget deficit means that debt-service costs in 2023/24 have been revised higher, by R15.7bn to R356bn.
Government debt
He said the deficit will begin to improve from 2024/25, to an estimated 4.5% of GDP, reaching 3.3% by 2026/27, as the main budget deficit narrows and social security funds, provinces and public entities move into a combined cash surplus in 2025/26.
Gross government debt is projected to reach R5.2-trillion, or 73.9% of GDP, in 2023/24. Gross loan debt is expected to stabilise at 75.3% of GDP in 2025/26, slightly lower than the 77.7% projected in the 2023 medium-term budget policy statement.
Debt service costs are expected to stabilise in the same year, he added.
“This will reduce government borrowing. A binding fiscal rule will be introduced to anchor sustainable public finances,” Godongwana said.
SA’s government gross loan debt as a percentage of GDP is at its highest point since 1947, and the debt-to-GDP trajectory is about 16 percentage points higher than the median emerging market level.
Gross loan debt has grown from R1.58-trillion in 2013/14 to R5.21-trillion in 2023/24.
In 2023/24, for the first time since 2000/01, debt-service costs absorb more than 20c of every rand collected in revenue and this metric will persist over the medium term.
This means debt-service costs consume a greater share of the budget than social development, health, community development, economic development and peace and security. Reducing these costs is critical for growth and development.
According to the Budget Review, over the next eight years a large portion of the liabilities that the government has incurred since 2009/10 will fall due with interest. It adds these foreign and domestic debt redemptions will average R249.1bn between 2024/25 and 2031/32, compared with an average of R61.7bn over the past decade.
The review identifies weaker-than-expected economic growth, which would slow revenue growth and widen the budget deficit, as risks to the fiscal outlook.
Close to estimate
It adds higher borrowing costs and the unaffordable wage increase in the second year of the medium-term expenditure period also add to these risks.
In terms of the main budget framework, the Budget Review reads that in 2022/23, the main budget deficit outcome of 4.6% of GDP was close to the 2023 budget estimate of 4.5% of GDP.
The 2023/24 main budget deficit is projected at 4.7% of GDP, compared with 3.9% in the 2023 budget, mainly due to lower revenue.
The Budget Review shows in 2022/23 the public-sector borrowing requirement fell to R306.6bn, or 4.6% of GDP, reflecting the narrowing of the consolidated budget deficit.
The borrowing requirements for 2023/24 are revised up by R84.1bn to R470bn, or 6.7% of GDP compared with the expectations in the 2023 Budget Review.
Treasury director-general Duncan Pieterse said SA’s sovereign credit risk premium remains elevated, with public debt as a share of GDP accelerating from 35.1% in 2010 to an estimated 73.9% in 2023.
“This has led to higher government borrowing costs and, because government bonds are used as a benchmark in credit markets, contributed to elevated borrowing costs across the economy,” he said.
Budget deficits are financed through borrowing in credit markets where the government competes with the private sector for the available savings in the economy.
Large budget deficits therefore reduce savings in the economy, with gross savings averaging 14.6% of GDP since 2010 compared with a world average of 26.8%.
Pieterse said higher savings are needed to finance private investment, which accounts for more than 70% of total investment in 2023, to support faster economic growth.
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