South Africa’s fiscal outlook improves while ’significant‘ risks exist

South African 100 rand banknotes against a black background in South Africa. Photographer: Waldo Swiegers/Bloomberg (South African 100 rand banknotes against a black background in South Africa. Photographer: Waldo Swiegers/Bloomberg, ASCII, 116 compon
South African 100 rand banknotes. Photo by Getty Images

South Africa’s Minister of Finance Enoch Godongwana on Wednesday predicted an improved fiscal outlook in his budget speech for 2022/23 financial year while saying it is subjected to “significant” risks.

The 2022/23 budget will shift from the trend that has seen over 308 billion rands (20.5 billion U.S. dollars) expenditure on bailing out failing state-owned companies and a reduction of 257 billion rands in frontline services and infrastructure since 2013, and restore focus on the government’s core functions, Godongwana told the National Assembly, the lower house of the parliament, in Cape Town, the legislative capital of South Africa.

Africa’s most-industrialized country is also on course to close key fiscal imbalances and restore the health of public finances, reducing the fiscal deficit and stabilizing debt, he said.

The minister predicted the consolidated budget deficit to narrow from 5.7 percent of GDP in 2021/22 to 4.2 percent of GDP by 2024/25, while the country will have a primary fiscal surplus, where revenue exceeds noninterest expenditure by 2023/24.

The government reduces the borrowing requirement, by using some of the extra revenue it has collected, for the first time since 2015, which decreases by 135.8 billion rand this year and a total of 131.5 billion rand over the next two years, he said.

However, the country has to stay vigilant and mitigate the risks where possible, including slowing global and domestical economic growth, calls for a permanent increase in social protection that exceed available resources, pressures from the public-service wage bill, continued requests for financial support from financially distressed state-owned companies, he added.

The budget will support Economic Reconstruction and Recovery Program, which remains essential to growth after over a decade of economic stagnation, and the government is accelerating the implementation of critical structural reforms contained in this program particularly in electricity, rail, ports and telecommunications, he said.

The national economic growth has been lowered to 4.8 percent in 2021 from last November’s 5.1 percent, due to the impact of changes in the global environment and South Africa’s own unique challenges, read the budget speech.

Real GDP growth in 2022 is expected to be 2.1 percent and to average 1.8 percent over the next years, it said.

South Africa has “turned the corner” and will build on the gains of 2021, Helmo Preuss, an economist at South Africa-based consultancy Forecaster Ecosa said.

The government has made economic growth its priority, which is why economic development gets the highest growth of non-interest spending over the next three years, said Preuss.

The economist also forecasted GDP growth for 2022 could be stronger than the government’s forecast, and higher revenue growth for 2022/23 financial year.