As the gross government debt is projected to reach R5.69-trillion in 2025, the National Treasury wants to introduce legislation aimed at curbing government debt from ballooning in the future.
Debt stabilises at a slightly higher level than projected in the 2024 Medium Term Budget Policy Statement but still achieves the overall policy objective.
Debt-service costs are expected to stabilise as a percentage of revenue in the current year.
The proposal comes after the financial years 2011/2012 and 2019/2020, a period which is infamously known as the “state capture years”.
Government spending grew faster than the gross domestic product (GDP), and revenue rose rapidly.
Exploring strong fiscal policy anchors
This high expenditure was mainly driven by bailouts to state-owned companies and major public entities, transfers to households, and a growing public-service wage bill.
“As the public finances stabilise and fiscal targets are met, the government has been exploring the implementation of strong fiscal policy anchors that will help prevent a recurrence of the cycle of high spending, high deficits, and high debt,” said Finance Minister Enoch Godongwana in his Budget Speech on Wednesday.
“At present, a primary budget surplus sufficient to stabilise debt has been adopted as the anchor. However, the obligation to keep public debt stable is not explicit in South Africa’s legal and regulatory framework.
“In this regard, the government is releasing, along with the Budget, a discussion document presenting options for such an anchor.”
Godongwana stated that the budget deficit was forecast at R370-billion for the next three financial years as government expenditure continues to outpace revenue collection.
He said the government expects to collect R2.2-trillion in revenue in 2025/2026, while government expenditure was projected to be R2.6-trillion in the same period.
Economy projected to grow slower
The GDP is projected to increase by 1.9% to R7.9-trillion.
“Gross government debt is projected to reach R5.69-trillion, or 76.1% of GDP, this year, stabilising at 76.2% of GDP in 2025/26.
“Debt stabilises at a slightly higher level than projected in the 2024 MTBPS but still achieves the overall policy objective.
“Debt-service costs are expected to stabilise as a percentage of revenue in the current year,” he said.
However, Godongwana warned that over the next three years the economy was projected to grow at a lower average of 1.8%.
He said despite the lower-than-expected economic growth in 2024, regular electricity supply, slowing inflation, and declining interest rates, supported by the government’s fiscal strategy, are improving confidence and enhancing the investment environment.
“It also enables the government to prioritise investment over debt service, which now consumes 22 cents of every rand of revenue.
“The cost of servicing South Africa’s government debt is significantly higher than in peer countries, driving up borrowing costs for households and businesses,” he said.
Budget deficit expected to narrow
National Treasury’s director general, Dr Duncan Pieterse, pointed out that over the past nine months, South Africa has benefitted from improved sentiment following the successful transition to a government of national unity and the stabilisation of electricity supply.
“But this optimism needs to be translated into more determined action and measurable results, specifically in the form of higher economic growth and improved living standards.
“Over the medium term, the budget deficit is expected to narrow to 3.5% of GDP. Crucially, the debt-to-GDP ratio will stabilise at 76.2% in 2025/2026, declining thereafter.
“These are important milestones, but more is needed to change South Africa’s economic and policy trajectory, particularly given growing external risks,” Godongwana said.
He said debt-service costs will peak in the current year, stabilising at 21.7% of revenue, and decline thereafter.
