South Africa’s Medium-Term Budget Policy Statement indicates the government recorded a primary budget surplus in FY2023/24 for the first time in 15 years
Finance Minister Enoch Godongwana, who has remained in his position during South Africa’s transition from being sorely governed by the African National Party (ANC) to a Government of National Unity (GNU), presented an update on government finances since the presentation of the country’s main Budget (in February), the Medium-Term Budget Policy Statement (MTBPS). The Minister highlighted one of the GNU’s three top priorities as outlined by President Ramaphosa: “...to drive inclusive growth and job creation, to reduce poverty and tackle the high cost of living..." However, the country’s fiscal policymakers face a difficult balancing act: they must manage debt sustainability while addressing the socio-economic needs of a population experiencing muted income growth and mounting economic hardships.
By means of illustration, South Africa’s gross domestic product (GDP) per capita data reveals a sluggish and inconsistent growth trend over the past two decades, with periods of contraction and intermittent growth spurts. Since the early 2000s, per capita GDP has faced several pressures, particularly evident from 2014 onward, when growth rates remained flat or negative for most years. The sharp contraction in 2020, with a GDP per capita decline of 7.4%, highlights the impact of the COVID-19 pandemic, but even the subsequent recovery has been limited. Even for 2023, GDP per capita recorded a minor decline of 0.3%, indicative of ongoing structural economic challenges. Current economic conditions—including low overall economic growth, high unemployment, and an elevated cost of living—have hindered the ability of GDP per capita to improve substantially, constraining real income growth for South Africans.
For fiscal policy, these stagnant GDP per capita levels imply increased pressure on an already constrained fiscal space. With near-stagnant economic growth, government revenues are unlikely to increase substantially, complicating efforts to manage public debt. Additionally, higher costs of living heighten demands for social assistance, further straining public finances, at a time when already a significant part of the South African government’s expenditure is spent on social assistance. The National Treasury notes that South Africa’s extensive social security system ranks among the largest in the emerging markets—from 2015 to 2020, the country’s social protection expenditure averaged 4.6% of GDP, significantly higher than the 1.6% average observed in other peer nations.
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