South Africa’s upcoming national budget will be closely monitored as analysts focus on key issues, including the debt-to-GDP ratio, government spending, and fiscal challenges that could further strain the country’s finances.
In October’s medium-term budget policy statement (MTBPS), the government reported that tax collection for the 2024/25 financial year fell short of expectations. However, recent data indicates a 5.3% increase in tax revenue this year, with government spending rising by just 4%. This raises the question of whether South Africa’s National Treasury could have met its elusive target of a primary budget surplus.
Despite these positive signs, the country’s debt problem persists. Debt-to-GDP is expected to peak at 75.5% in 2025/26, well above the 60% ratio considered sustainable for emerging economies. While some measures have been put in place to stabilise the debt ratio, experts remain concerned about the long-term sustainability of government borrowing, especially as the cost of debt rises.
Inflation has remained lower than expected, and the implementation of the 2-pot retirement system has led to R43 billion being injected into the economy, boosting South Africa’s savings rate (SRS). However, South Africa’s economy continues to face a range of risks, including lower-than-expected GDP growth, a limited tax base, and ongoing reliance on borrowing to cover government spending.
The country’s fiscal position is further jeopardised by the recent move by the US administration to cut support to South Africa, potentially jeopardising the renewal of the African Growth and Opportunities Act (AGOA), which provides around $4 billion in preferential exports. This decision could also increase borrowing costs and negatively affect foreign investor sentiment. Should credit rating agencies downgrade South Africa’s debt, borrowing costs will rise further.
Public sector wages remain a significant portion of government expenditure, making up 37% of revenue. While some unions have accepted a revised wage increase of 5.5%, the overall public sector wage bill continues to put pressure on South Africa’s fiscal health.
The state-owned transport and logistics utility, Transnet, is another potential risk. Transnet, which is responsible for vital infrastructure such as railways, is facing a R140 billion loan burden and is in desperate need of a bailout. Poor rail infrastructure and inefficiencies have cost the economy billions, and without urgent reforms, South Africa’s economic growth may be further hindered.
President Cyril Ramaphosa recently committed to improving the management of municipalities and public utilities. This includes creating professionally managed utilities to ensure proper infrastructure investment and better service delivery. Municipalities are also under pressure to improve their ability to collect rates and taxes, as Eskom’s debt to municipalities has skyrocketed, increasing from R28 billion in 2020 to R107 billion by December 2024.
In addition to potential increases in sin taxes, analysts will be looking for other tax measures aimed at improving South Africa’s fiscal position. One such proposal is the R100 billion BEE Fund, intended to support black businesses, although this has been met with some opposition due to its potential impact on the private sector.
With a large portion of South Africa’s tax revenue coming from a small percentage of the population, the idea of implementing a social security tax to fund a basic income grant (BIG) has raised concerns. Economists argue that focusing on economic growth and job creation would be a more sustainable solution to addressing inequality.
As South Africa faces significant fiscal challenges, the upcoming national budget will be a crucial test for Finance Minister Enoch Godongwana in balancing competing priorities while improving investor sentiment. The property sector, already struggling with high interest rates, municipal costs, and power outages, will be closely watching for signals on how the government plans to manage these complex issues.
