South Africa’s National Treasury is set to widen its budget deficit forecasts for the upcoming three fiscal years, reflecting the mounting economic pressures stemming from increased debt-service obligations, social expenditure, and ongoing financial support for state-owned enterprises. The latest estimates, derived from a Reuters survey of economists conducted between 6 and 13 February, indicate that the consolidated budget deficit will likely be larger than previously anticipated in the October forecast.
The Treasury’s deficit projection for the financial year commencing in April 2024 is expected to reach 4.55% of gross domestic product (GDP)—a notable increase from the 4.30% forecast in October 2023. Similarly, for the 2025/26 fiscal year, economists predict a 4.00% deficit, which exceeds the earlier projection by 0.40 percentage points. By 2027/28, however, the deficit is anticipated to contract to 3.60% of GDP, suggesting a gradual path towards fiscal consolidation.
Economic analysts highlight that these revised forecasts are driven largely by persistent fiscal burdens. According to Dennis Shen, senior director at Scope Ratings, “Spending pressures are increasing due largely to rising debt-service payments given elevated global borrowing rates, social-spending programmes, and ongoing support for state-owned enterprises such as debt relief for Eskom.” Shen further cautioned that these challenges could impede efforts to stabilise public finances, potentially keeping the government deficit at elevated levels while pushing national debt towards 80% of GDP before the decade’s end.
One of the most significant fiscal liabilities remains Eskom, the debt-laden power utility that has long struggled with financial instability. With over 400 billion rand ($21.81 billion) in debt—much of which it cannot service independently—Eskom continues to necessitate government-backed relief measures, further exacerbating the fiscal strain. In October 2023, the National Treasury estimated that the overall budget deficit for the 2024/25 financial year would stand at 5.0% of GDP, underscoring the ongoing challenges in achieving fiscal sustainability.
Despite these pressures, some economists maintain that the government’s broader fiscal stabilisation plan remains viable. Elna Moolman, head of macroeconomic, fixed income, and currency research at Standard Bank, stated, “We still see debt stabilisation as a credible forecast. Though the risks have increased and it will be challenging for the government to absorb some of the increased spending pressures via reallocations, we believe, however, that the government is committed to fiscal consolidation.”
South Africa’s fiscal outlook is further constrained by slow revenue growth, which lags behind expenditure increases. The survey suggests that gross debt-to-GDP will reach 76.0% in the new financial year, further reflecting the delicate balance required to manage state finances effectively.
Beyond fiscal policy, the country’s economic growth trajectory remains modest. The surveyed economists forecast GDP growth of 1.7% in 2024, with a slight acceleration to 2.0% in 2025. However, inflation is expected to moderate, averaging 4.0% in 2024 before edging up to 4.5% in 2026.
The upcoming Budget Speech on 19 February 2024 will be closely monitored by investors and policy analysts, as Finance Minister Enoch Godongwana is expected to provide updated deficit projections and outline the government’s approach to balancing fiscal discipline with economic growth imperatives. Market participants will scrutinise the Treasury’s ability to manage spending pressures while maintaining confidence in South Africa’s economic and fiscal credibility.
