The National Treasury said on Wednesday that the economy is estimated to have grown by 0.6% in real terms in 2023.
Growth Domestic Product (GDP) growth is projected to increase from an estimated 0.6% in 2023 to an average of 1.6% between 2024 and 2026, while real GDP has been revised to 1.3% for the 2024 period.
In his budget speech, Finance Minister Enoch Godongwana said that despite the improved global outlook for 2024, South Africa’s near-term growth remains hamstrung by lower commodity prices and structural constraints.
“We estimate real GDP growth of 0.6 per cent in 2023. This is down from 0.8 per cent growth estimated during the 2023 MTBPS,” he said
According to the statement by Treasury, global inflationary pressures are receding and interest rates are expected to start declining.
Government is confident that power cuts should become more infrequent as additional generating capacity comes online.
What is hampering growth?
Treasury cited widespread power cuts, operational and maintenance failures in freight rail and at ports, and high living costs as the main reasons causing slow economic growth.
GDP growth has averaged only 0.8 per cent since 2012, a rate of economic growth that is insufficient to address high levels of unemployment and poverty.
“As such, our fiscal strategy supports economic growth and reduces risks to the economy while ensuring fiscal sustainability. Compared to a year ago, the budget deficit for 2023/24 is estimated to worsen from 4 per cent to 4.9 per cent of GDP.
“The higher budget deficit means that debt-service costs in 2023/24 have been revised higher, by R15.7 billion to R356 billion,” Godongwana said.
Long term growth in SA could only be achieved by improving capacity in energy, freight rail and ports, and on continuing to reduce structural barriers to economic activity, the organisation added.
Government is prioritising macroeconomic stability, structural reforms and improvements in state capability to raise growth rates in a sustainable manner.
Debt
Government’s fiscal policy is still centred around stabilising debt and servicing debt costs.
Government said also that it is still on course to achieve a primary budget surplus in 2023/24, and to stabilise debt at 75.3% of GDP in 2025/26.
Treasury added that debt-service costs only take up one of every five rands of government revenue and absorb a larger share of the budget than basic education, social protection or health.
Compared to a year ago, the budget deficit for 2023/24 is estimated to worsen from 4% to 4.9% of GDP, the minister said.
The higher budget deficit means that debt-service costs in 2023/24 have been revised higher, by R15.7 billion to R356 billion.
“Debt-service costs will absorb more than 20% of revenue. To put this into perspective, spending on debt-service costs is greater than the respective budgets of social protection, health, or peace and security. For this reason, we are strengthening our strategy and sticking to our fiscal goals,” Gondongwana said.
Treasury noted that government has decided to further add to fiscal risks by reducing borrowing by using a portion of valuation gains in the Gold and Foreign Exchange Contingency Reserve Account (GFECRA).
“A net reduction of R80.6 billion in non-interest expenditure is being implemented over the medium-term. At the same time, revenue has been revised up by R45.6 billion over the medium-term, relative to 2023 MTBPS. And, we have taken the decision to introduce a reform of the Gold and Foreign Exchange Contingency Reserve Account,” the minister said.
“The national government gross borrowing requirement will decline, from R457.7 billion in 2024/25 to R428.5 billion in 2026/27. The deficit will begin to improve from 2024/25, to an estimated 4.5% of GDP, reaching 3.3% by 2026/27,” he further explained.
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