Rude awakening for South Africa
While various sectors, commentators, analysts and economists have given finance minister Enoch Godongwana’s first budget under the Government of National Unity (GNU) a muted thumbs up, it also serves as a serious reminder of the deep financial trouble the country is in.
South Africa has enjoyed a sweeping wave of positivity and hope following the establishment of the GNU in June 2024. This has been reflected in a stronger rand, better financial markets, and a change in tone from many business leaders and investors.
The formation of a multi-party government after the ANC lost its majority in the 2024 national election sparked hope that the country would finally be able to break free from more than a decade of economic stagnation, and reforms would put it on a solid path to recovery.
However, in delivering his medium-term budget policy statement on Wednesday (30 October), Godongwana presented numbers and data—the reality of South Africa’s situation—that revealed a challenging fiscal landscape, characterised by a revenue shortfall, high levels of debt and competing social security and other priorities.
In a nutshell, the country does not have enough money to finance everything that is demanded of it, and as the minister put it, “difficult trade-offs” lie ahead. These are realities that positive sentiment simply can’t sweep away.
According to Business Unity South Africa (BUSA), the budget was a stark reminder of the depths of the fiscal problems that the National Treasury is trying to recover from.
These include “symptoms of structurally low growth, a historic lack of prioritisation in expenditure by cabinet, previously delayed reforms, and very high costs of borrowing,” it said.
“While there is light at the end of the tunnel, record high levels of debt service costs as a share of revenue are a reminder that it will take some time to exit the current situation,” it said.
Fortunately, it appears as if Godongwana and his team at the National Treasury are at least on the right path, with BUSA welcoming the continued focus on fiscal consolidation, the move to contain the risks of an unsustainable debt-to-GDP trajectory, and not giving SOEs more bailouts.
However, it flagged issues that seem to be the antithesis to this – such as the National Health Insurance (NHI) scheme, which again lacked any clear direction on funding.
“A small amount of money for the NHI regarding the digitisation of patient records arguably is needed, regardless of the NHI, and the documentation from the National Treasury makes it clear that no major funding shifts are seen before the end of March 2028,” BUSA said.
There are also growing risks around the public sector wage bill again, with no room in the budget for above-inflation wage hikes. The business group warned that fiscal discipline remains a priority.
“While we are certainly not out of the fiscal or growth ‘woods’ yet, there is clearly progress, and this MTBPS provides a firm foundation,” it said.
According to Business Leadership South Africa (BLSA), the budget was generally muted, again reflecting the reality of South Africa’s finances outside of the ‘buzz’ of the GNU over the past few months.
The group said that, overall, the National Treasury has prioritised the most important areas to address the deficiencies in South Africa’s network industries, but didn’t introduce anything dramatic or new.
BLSA said the February budget would provide more detail on the GNU’s plans, particularly for facilitating public-private partnerships, which are needed to accelerate the important infrastructure development needed to establish a strong foundation for future economic growth.
“BLSA also looks forward to a whole government approach in making the assumptions underpinning the MTBPS a reality and to the government showing the necessary discipline and courage to maximise value for money and return on investment in all aspects of government spending.”
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