The National Treasury has recently released its projections for South Africa’s economic growth in the coming years.
According to the Treasury, the economy is estimated to have grown by 0.6% in real terms in 2023. However, the growth rate is expected to increase to an average of 1.6% between 2024 and 2026, with a revised projection of 1.3% for the 2024 period.
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Finance Minister Enoch Godongwana, in his budget speech, acknowledged that while there is an improved global outlook for 2024, South Africa’s near-term growth remains constrained by lower commodity prices and structural constraints.
These factors have contributed to the slow economic growth experienced by the country, with GDP growth averaging only 0.8% since 2012.
The Treasury identified several factors hampering growth in South Africa. Widespread power cuts, operational and maintenance failures in freight rail and at ports, and high living costs were cited as the main reasons for the slow economic growth.
These challenges have hindered the country’s ability to address high levels of unemployment and poverty.
To address these issues and stimulate economic growth, the government is prioritising macroeconomic stability, structural reforms, and improvements in state capability.
Long-term growth in South Africa can only be achieved by improving capacity in energy, freight rail, and ports, as well as reducing structural barriers to economic activity.
In terms of fiscal policy, the government’s focus remains on stabilising debt and servicing debt costs. The Treasury stated that the primary budget surplus in 2023/24 is still on track to be achieved, with debt projected to stabilise at 75.3% of GDP in 2025/26. However, it is important to note that debt-service costs currently absorb a significant portion of government revenue, surpassing the budgets allocated to basic education, social protection, or health.
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The budget deficit for 2023/24 is estimated to worsen from 4% to 4.9% of GDP, resulting in higher debt-service costs. To address this, the government has implemented a net reduction of R80.6 billion in non-interest expenditure over the medium term.
Additionally, revenue has been revised up by R45.6 billion relative to the 2023 Medium-Term Budget Policy Statement (MTBPS). The government has also decided to introduce a reform of the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) to further reduce borrowing and mitigate fiscal risks.
Despite the challenges faced, the government remains confident in its fiscal strategy and goals. It acknowledges the need to strengthen capacity in key sectors such as energy, freight rail, and ports, and to continue reducing structural barriers to economic activity. By prioritizing macroeconomic stability, implementing structural reforms, and improving state capability, the government aims to raise growth rates in a sustainable manner.
