Finance Minister Enoch Godongwana delivered his 2024 mid-term budget statement this week (Wednesday 30 October 2024). And while it was interpreted as a stern ‘reality check’ by many, it still gave plenty of reason for positivity, reports Daily Investor. As the first of its sort under the newly formed Government of National Unity (GNU), Godongwana revealed a R22.3 billion shortfall in government tax collection. And that’s just the beginning of the harsh truths …
2024 MID-TERM BUDGET STATEMENT
Moreover, he said the main budget revenue estimate will be lowered by R31.2 billion over the next two years (till 2026). “In the absence of faster growth, our tax revenue will remain under pressure, forcing us to make difficult decisions on where to spend our money. Lower revenue also means we cannot, within the envelope, accommodate all of the demands on the fiscus,” explained Godongwana.
The National Treasury predicts the South African economy to grow by an average of 1.8% per year for the next three years. However, government debt continues to grow, anticipated to reach R6 trillion (75% of GDP) in 2026. The minister explained that South Africa’s debt is unsustainable because debt-service costs have become the largest component of our spending. And it continues to rise faster than economic growth. “To deal with this problem, we have taken difficult steps to reduce the budget deficit. We have restrained spending and maintained stable tax collection,” said Godongwana.
SOUTH AFRICA’S REALITY CHECK
Here’s how several key industry experts interpreted the 2024 mid-term budget statement from the minister:
- Sanlam’s Arthur Kamp says: It’s a mix of good and bad news. He is encouraged that the debt ratio is expected to peak at 75% of GDP and then decline. He said it is also important to note the government’s primary budget balance, which is revenue less non-interest spending. That is projected to improve from a surplus of 0.4% of GDP this year to 1.8% of GDP by 2027/28, which will help stabilise the debt ratio. “Kickstarting economic growth through infrastructure projects is essential. Otherwise, unemployment and social spending will remain high,” said Kamp.
- Citadel’s Maarten Ackerman says: The 2024 mid-term budget statement was fair and transparent and also a reality check. It makes clear the hard work needed to fix economic growth, growing debt and the country’s greylisting. It also poured cold water all over the good news the market was expecting following the formation of a GNU, improved energy security and lowering inflation. “There were no short-term wins in any of the numbers. The rand weakened, and bonds sold off immediately because the budget is based on the reality on the ground and not just positive thinking. We can’t fault the budget, however. The process has been thorough and world-class,” said Ackerman.
- Investec’s Annabel Bishop says: The 2024 mid-term budget statement reveals a deterioration in South Africa’s fiscal outlook for beyond current expectations. This includes a wider budget deficit, a lower growth forecast and rising debt. This reflected afterwards with the rand weakening against the US dollar and increased borrowing leading to higher bond yields. “A weak economic growth environment is not encouraging for foreign direct investment. And South Africa’s growth is stuck below 2% until 2028. This once again highlights the challenges facing South Africa’s economy. Government’s focus on infrastructure spending is positive, but concerns remain about the sustainability of public finances and the impact of increased regulation on economic growth,” said Bishop.
ARE YOU POSITIVE ABOUT THE FINANCIAL OUTLOOK GOING FORWARD?
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