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Home » Insights shared on Minister Godongwana’s MTBS Part 1

Insights shared on Minister Godongwana’s MTBS Part 1

Compiled and edited by Eamonn Ryan

The first fiscal policy statement since the formation of the Government of National Unity (GNU) in June 2024 was tabled 30 October 2024. This is Part 1 of a three-part series.

It is encouraging that the MTBPS focused on initiatives to lift growth-enhancing public sector infrastructure investment.
It is encouraging that the MTBPS focused on initiatives to lift growth-enhancing public sector infrastructure investment. SA Reserve Bank

Compared to the projections in the February 2024 Budget, the somewhat more optimistic real GDP growth forecasts that informed the public finance ratios presented in the Medium-Term Budget Policy Statement (MTBPS) were welcomed. After a subdued 1.1%1 in 2024, this sees real GDP growth in South Africa averaging 1.8% between 2025 and 2027, somewhat higher than the IMF’s latest projection for average medium-term growth of 1.5% in South Africa.

The MTBPS highlighted that the slightly higher growth forecast is a function of improved power supply and better business, consumer and investor confidence tied to the GNU. Importantly, to ensure sustainable public finances, growth needs to improve to well beyond 2% on a sustained basis. For this to materialise, non-energy growth constraints and structural reforms must be tackled with vigour.

 

Infrastructure investment

It is encouraging that the MTBPS focused on initiatives to lift growth-enhancing public sector infrastructure investment. Among other measures, this includes actions to scale up private sector participation, carving out government borrowing for infrastructure as a standalone category of government’s overall borrowing requirements, and extending the scope of borrowing to include infrastructure bonds.

The main Budget in February 2025 may provide clarity on the introduction of a new fiscal anchor to guide fiscal policy, as well as a possible change to the SA Reserve Bank’s inflation target. At this stage, Treasury expects headline CPI inflation to average 4.5% during the next three years. The key takeaway from the MTBPS is that South Africa’s public finances remain precarious. At 75.5% of GDP in 2025/26, gross debt is now projected to peak somewhat higher than envisaged in the February 2024 Budget. The higher debt peak is a function of lower revenue projections and more spending. Although moving lower as Treasury budgets for primary budget surpluses3, the debt ratio also remains higher over the medium term than outlined before. It now ends at 69.3% of GDP in 2031/32 versus the 67.1% expected in February.

Source:

  1. Minerals Council South Africa: “MTBS boosts infrastructure spend outlook, with mining set to benefit.”
  2. Banking Association South Africa: “The 2024 Medium Term Budget Policy Statement”

References:

  1. This is in line with the latest consensus from private sector economists for growth in 2024. For next year, the fact that Treasury’s growth forecast is at ‘only’ 1.7% highlights the scale of work required to get to the 3%+ upside growth scenario recently presented by the business sector and informed by modelling from the Bureau for Economic Research.
  2. World GDP per capita for 2023 was USD13,138, a 3.21% increase from 2022. https://www.macrotrends.net/global-metrics/countries/WLD/world/gdp
  3. Bulk mining refers to the iron ore, coal, chrome and manganese sectors. 
  4. The primary budget measures the difference between government revenue and non-interest government expenditure.

Continued in Part 2…

 

 

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