A bird’s-eye view of Enoch Godongwana's economic agenda

The economy’s performance: A lot has changed in politics and markets since Finance Minister Enoch Godongwana delivered the 2024 Budget in February.  However, the real economy’s performance has not changed. And the National Treasury’s economic outlook reflects this. The Treasury has lowered its 2024 economic growth forecast to 1.1%, from 1.3% projected in February.

Although the energy crisis has faded, consumer inflation has eased, and confidence has improved, the economy is still hobbled by the logistics crisis. Improvements in the economy’s performance will only reflect from 2025 to 2027 when growth is expected to average 1.8% over this period, up from 1.2%. 

Read in full — the Medium-Term Budget Policy Statement

State-owned enterprise bailouts: No new bailouts were awarded to state-owned enterprises (SOEs) in the statement. There was no money allocated for the SA Post Office, which has asked the Treasury for an additional R3.8-billion to avoid liquidation. Without the funding the SA Post Office’s doors are likely to permanently close, along with its 657 branches across the country, leaving its remaining 6,208 workers out of work.

Social grants: In the statement, the Treasury has sidestepped the issue of making the R370-a-month social grant permanent or replacing it with a Basic Income Grant. The Treasury has repeated its previous position on the matter, saying that a permanent grant must be supported by higher revenue sources. Proposals on ways to reform and possibly extend the welfare systems will be presented in the 2025 Budget. 

Public sector wage bill: The government is struggling to wrestle down the cost of paying South Africa’s 1.3 million public servants. Over the next three years, this cost will increase by R145-billion. Of this amount, R48.4-billion will go towards funding pay increases for public servants during the 2025/26 fiscal year.

During this period, the government has floated the idea of offering public servants wage adjustments of 4.7%. To reduce the wage bill, the government will ask older public servants to accept voluntary early retirement packages between 2025 and 2026 — which could save the Treasury up to R11-billion. More details will be unveiled in the 2025 Budget.

The government’s debt problem persists: South Africa is still having difficulties dealing with soaring public debt. Debt and associated borrowing costs continue to rise, going from R5.6-trillion or 74.7% of gross domestic product (GDP) in 2024/25 to R6.8-trillion or 75% of GDP in 2027/28. Rising debt (especially long-term debt) and interest costs are bad news as they reduce the government’s ability to fund crucial service delivery programmes. 

The International Monetary Fund has urged the Treasury to introduce a debt ceiling, capping it at 77%. The Treasury has yet to opine on this suggestion. However, it brought in academics, international experts, and other stakeholders to make inputs on fiscal anchor policy options. A discussion document will be released by the end of March 2025. 

Government spending: The Treasury has long committed to a programme of reducing spending to put public finances on a sustainable path. However, there are still no tangible decisions on reducing government spending. This underscores difficulties in getting an agreement or consensus on which government departmental budgets to cut.

Instead, government expenditure will increase by R32.4-billion to reach R2.7-trillion over the next two years on things including funding early retirement packages for public servants, paying nearly R4-billion in debt left by the scrapping of e-tolls in Gauteng, and the deployment of SANDF troops in the Democratic Republic of the Congo, activities of South Africa’s G20 presidency in 2024/25, and unforeseen circumstances (supporting  the rebuilding and rehabilitation of infrastructure damaged by floods across multiple municipalities and provinces).  

Government revenue from taxes is coming in weaker: Compared with the 2024 Budget, the government’s tax revenue estimate for 2024/25 is revised down by R22.3-billion. The fading of the electricity crisis is leading to lower imports of energy-related components, lower projected fuel levy collections, and personal income tax collections that are expected to underperform.

The upside is that corporate tax and domestic VAT collections are expected to exceed 2024 Budget projections. The newly implemented two-pot retirement system may also boost  tax revenue and household consumption over the next few years – depending on the eventual use of the withdrawn funds.

Structural reform agenda continues: Operation Vulindlela, which is the Treasury’s initiative to implement structural reforms to grow the economy and boost investments will continue. Phase one has tackled reforms in energy, logistics, technology, and others.

Phase two will tackle the dysfunction of municipalities around the country, spatial inequality and accelerate public-private sector partnerships on infrastructure projects such as human settlements, schools, roads and bridges. The government will offer credit guarantees for private sector players embarking on infrastructure projects. DM