The Treasury has provided optimistic and pessimistic scenarios on economic growth and the state of the country’s public finances.
The medium-term budget policy statement (MTBPS) sketched the two scenarios for GDP growth which plot deviations from a 2023 baseline. This compares with the real GDP growth forecasts in the document of 1.7% for both 2025 and 2026 and 1.9% in 2027.
“Weak economic growth is the most significant macroeconomic risk to the fiscus,” the Treasury said.
The optimistic scenario on real economic growth sees it rising progressively by 1.8 percentage points above the 2023 baseline (when growth was below 1%) in 2028 and by 2.4 percentage points above the baseline in 2032. The more pessimistic scenario sees it declining from zero growth in 2024 and progressively drop to a decline of 0.5 percentage points below the baseline, which continues at this level from 2027 to 2032.
The Treasury says the positive scenario incorporates additional capacity from energy investments, coupled with the success by the national logistics crisis committee in resolving problems in ports and certain rail corridors.
“These reforms would enhance productive capacity, build confidence and reduce the sovereign risk premium. Real GDP is 2.4 percentage points above the baseline forecast by 2032 as supply-side constraints are alleviated, raising capital stock accumulation and yielding productivity improvements that support overall trade volumes.”
The more pessimistic scenario assumes slower than projected global growth in 2025 and possibly into 2026.
“This reduces commodity demand and global trade with significant knock-on effects for SA exports. Additionally weaker growth heightens risk aversion towards emerging and developing economies as investors shift to safe-haven assets in advanced economies, reducing SA financial asset prices and weakening the rand. Real GDP underperforms in the near term before levelling off 0.5 percentage points baseline forecast by 2032.”
The Treasury says the balance of risks to global growth are weighed to the downside while risks to the domestic outlook appear more balanced than projected at the time of the February budget.
“A prolonged deceleration of global economic growth or a failure to overcome SA’s persistent logistical constraints would result in additional pressure on revenue collection and the fiscal position.
“Global growth may weaken due to financial market volatility, tightening conditions for developing economies, slower disinflation from rising commodity prices and a prolonged contraction in China’s property sector.
“The materialisation of major risks could threaten fiscal projections with negative consequences for investment and economic growth.”
Positive factors possibly influencing the domestic outlook include a quicker pace of disinflation and interest rate reductions which would boost demand. “Stable electricity supply and faster progress on reforms could boost business and consumer confidence,” the Treasury said.
The fiscal scenarios paint on the one hand a positive outcome in which the primary balance (revenue exceeds non-interest expenditure) improves more rapidly relative to the 2024 MTBPS baseline projection. Debt service costs fall below 20% of revenue by 2030/32 and the debt-to-GDP ratio stabilises at 74.8% in 2024/25 and declines thereafter to 60.7% of GDP in 2032/33.
The MTBPS has estimated a gross debt-to-GDP ratio of 74.7% in 2024/25, 75.5% in 2025/26, 75.3% in 2026/27 and 75% in 2027/28.
The more pessimistic scenario assumes a deterioration in the primary balance by R78.9bn over the medium term compared with the baseline forecast. Debt service costs remain above 20% of revenue for the foreseeable future.
By 2027/28 debt stabilises at 77.4% of GDP and then declines to 71.4% of GDP by 2032/33.
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