South Africa's budget forecast: Balancing deficits, reforms and growth amidst coalition changes

South Africa's government, on Wednesday, forecast wider budget deficits and higher debt over the next three years, even as it anticipated better growth prospects due to improved electricity supply.

In the first budget review since the African National Congress (ANC) lost its ruling majority and formed a coalition government, National Treasury said it saw the consolidated deficit at 5.0% of national output in the fiscal year ending in March 2025, wider than the 4.5% deficit forecast in February. For the next fiscal year, Treasury now sees a budget deficit of 4.3% of gross domestic product (GDP), up from a previous forecast of 3.7%.

Budget outlook

The economy is projected to grow at an average of 1.8% annually over the next three years.

The consolidated budget deficit is projected to narrow from 5% of GDP in 2024/25 to 3.2% of GDP in 2027/28.

Economic reforms are beginning to bear fruit:

• Improvements in electricity supply.
• A stabilising logistics system.
• A reduction in some business costs indicate early success in economic reforms.   

  

Economic outlook

Global outlook

The global economic outlook shows steady growth, with an anticipated 3.2% growth rate in 2024 and 2025, to reduce slightly to 3.1% after 2025. However, the outlook remains vulnerable to risks such as geopolitical tensions, elevated global debt levels and ageing populations.
 

Domestic outlook

For South Africa’s domestic economy, real GDP is expected to grow by 1.1% in 2024, a slight increase from 0.7% in 2023. This is lower than the estimates of 1.3% in February. Growth is forecast to be 1.8% over the medium term.

Factors affecting growth include power cuts, logistical issues in freight rail and ports, and high living costs. The medium- to long-term outlook depends on addressing supply constraints and reducing structural barriers to economic activity.

 

Fiscal outlook

Revenue outlook

Revenue collection for the first half of 2024/25 was 5.2% higher than this same time last year.

However, gross tax revenue is projected to be R22.3 billion lower than what was budgeted for.

This was due to the following items coming in lower than budgeted. 

• Lower import VAT collections which was down R20 billion.
• Lower fuel levy collections which was down R13.4 billion.
• Lower personal income tax collections which was down R9.7 billion.

Corporate tax revenue increased R11.7 billion from what was projected in February.

For the tax-to-GDP ratio to go beyond its 24.6% estimate, more sustainable economic growth is required. 

Debt outlook

Government is hoping to curb the trend of mounting debt-service costs. The decrease in revenue outcomes has resulted in a change to their projections (as shown in figure on the left below).

The current projections expect debt to stabilise at 75.5% of GDP in 2025/26. This equates to 21.7% of the revenue expected in the 2025/26 tax year (as shown in the figure on the right below).
 

Growth plans

Government will continue to support the repositioning of strategic state-owned assets, which will also include allowing higher levels of private investment in infrastructure.

South Africa’s economic strategy centres on four main pillars to drive sustainable growth and reforms under the Operation Vulindlela (OV) initiative:
 
Pillar 1: Maintaining macroeconomic stability
A stable, transparent and predictable macroeconomic framework remains fundamental for better growth outcomes. This includes upholding fiscal discipline and a reliable policy framework that supports investor confidence.
 
Pillar 2: Implementing structural reforms
The first phase of Operation Vulindlela has started addressing economic bottlenecks. The government plans to continue with Phase II; building on these efforts to enhance sectors like energy, logistics and digital access, which are crucial to reducing economic constraints.
 
Pillar 3: Building state capability
Strengthening state institutions is essential for effective public service delivery, which in turn fosters a conducive environment for growth and job creation.
 
Pillar 4: Supporting growth-enhancing infrastructure investment
Public infrastructure investments, such as those in transportation and energy, aim to bolster economic activity and support higher growth rates over the medium term.

The “second wave” of reforms under OV Phase II aims to deepen and broaden these efforts. The OV Phase II will address structural challenges such as local government efficiency and spatial inequality. This process has involved in-depth consultation with experts to set impactful priorities for economic and job growth.


 Souce: National Treasury

Through these reforms, South Africa aims to create a robust foundation for inclusive, long-term growth that tackles both systemic and emerging economic constraints.

Conclusion

Overall, government are making the right noises when it comes to stimulating growth and cutting costs (particularly with regards to the public sector wage bill). Furthermore, it appears that the first stage of ‘Operation Vulindlela’ has begun to address economic constraints, and the Finance Minister stressed the importance of continued structural reforms.

South Africa needs action and reform that can be implemented swiftly and efficiently. The Government of National Unity  may be in its infancy, but they do not have the luxury of time on their side. South Africans have been hoodwinked by false promises in previous budget speeches – we cannot afford to see this again.
  

 

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Key MTBPS documents

 

• 2024 Medium Term Budget Policy Statement Speech by the Minister of Finance (345kb)
• Medium Term Budget Policy Statement (MTBPS) (1240kb)
• MTBPS 2024 Presentation - Building momentum for inclusive growth (1101kb)

 

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This Medium Term Budget Policy Statement review was compiled by Thuli Nkomo CFP®, Jonathan Braans CFP®, Tumelo Magasha CFP®, Brendon Wright, Dineo Masiu and Daniel Wiid.