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Damned if you do, damned if you don’t

By Chris Hattingh 

In its 25 January statement, the South African Reserve Bank’s Monetary Policy Committee paints a stark picture of South Africa.

“The operation of ports and rail has become a serious constraint, and, alongside electricity shortages, contributed to weak output growth and higher costs last year. These constraints are expected to persist, severely limiting potential growth of the economy.” 

Add to this the forthcoming national and provincial elections, with increased general anxiety and uncertainty about how governance will look. 

Finally, a global environment of rising geopolitical and geo-economic tensions and distance, with negative consequences for emerging and developing markets especially. The macro context for this year’s Budget, to be delivered by finance minister Enoch Godongwana, is therefore exceedingly difficult.

South Africa’s debt-to-GDP ratio has been steadily increasing, on course to reach 77% in 2025/26. Looking at the Medium-Term Budget speech delivered by Minister Godongwana in November last year, the country’s gross debt will increase to R5,2-trillion in 2024/25, from R4,8-trillion in 2023/24. 

Where debt servicing costs were at the 20,7% of revenue mark in 2023/24, these are expected to reach 22,1% of revenue in 2026/27.

The interest on South Africa’s debt alone will come in at around R385,9-billion; phrased differently, that means around R1,06 billion per day just on servicing debt. 

Those levels of debt and debt servicing costs, are a serious problem for and risk to government spending, initiatives, social welfare support, the public sector generally, as well as the current government’s overall relationship with businesses and citizens.

Given that elections are on the horizon, cutbacks to spending in avenues such as welfare are highly unlikely. 

So too, tax increases, but perhaps there is scope for some element of such increases, especially for high-income earners. 

Should paring back of spending in something like welfare not be forthcoming, other avenues and areas will need to take the pain. A lowering of spending in education, healthcare, defence capabilities (army, navy, air force), and possibly even in policing could simply become a consequence of the difficult reality in which the government finds itself. 

With electricity outages persisting, more and more South Africans who are able to are investing in solar capacity. Private solar PV is estimated at over 5,000 MW. 

While alleviating some of the pressure on Eskom and the government, the downside for municipalities is the reality of lower revenue collection. When you combine the national context of a Treasury under all sorts of fiscal pressures with the municipal issue of lower revenue collection (and possibly receiving less to spend from the national government), municipalities’ own spending priorities may well also need to change.

South Africa’s GDP growth rate may reach the 1,5% to 1,7% mark in 2024. While an improvement on the 0,6% delivered in 2023, that is by no means enough to make a dent in the unemployment rate, but more widely to produce markedly improved numbers of citizens who can pay more in terms of tax revenue. 

That short-to-medium-term picture means national fiscal constraints will persist. 

On 1 February minister in the presidency, Khumbudzo Ntshavheni stated: “We think it’s a priority that [the National Health Insurance Bill] must be signed during this period.” 

This period ends before the elections scheduled for later this year. The NHI, along with a possible Basic Income Grant, will add significant pressure onto the public purse – with negative implications, especially for the small tax base. 

But considerations concerning imposing such pressures and undermining general fiscal stability and responsibility might ultimately be sacrificed on the altar of political expediency.

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