Government says the robust pace of economic recovery in early 2022 was derailed by floods in various parts of the country, particularly KwaZulu-Natal and the Eastern Cape.
Finance Minister Enoch Godongwana was delivering the Medium Term Budget Policy Statement at the National Assembly sitting at the Cape Town City Hall.
He says industrial action in key sectors and widespread power cuts also hampered growth prospects.
Godongwana says growth has been forecast on the downside to 1.9% for 2022.
He says, “Domestically, the robust pace of economic recovery in early 2022 was derailed by floods in various parts of the country, particularly KwaZulu-Natal and the Eastern Cape; industrial action in key sectors, and widespread power cuts. We now expect real GDP growth of 1.9% in 2022, compared with an estimate of 2.1% in February. Over the next 3 years, the economy is expected to grow at an average of 1.6%.”
Government expects that the country’s debt-to-GDP ratio will stabilise at 71% this year, down from a previous projection of 74% in the February budget.
It notes that global growth has weakened, while borrowing costs are rising rapidly which does not bode well for South Africa’s rising R4.7 Trillion debt.
Godongwana says debt servicing costs continue to place a burden on the fiscus.
He says, “This debt is incurring debt-service costs that will average R355.2 billion per year over the medium-term expenditure framework. As already outlined, the global economy is slowing, inflation is increasing, and financial markets are becoming more volatile. The result is that the debt-service costs are estimated to be R5.9 billion higher in 2022/23 than what we thought at the time of the February budget.”
Godongwana says South Africa is restoring the health of its public finances due to disciplined budgeting, supported by high commodity prices and a narrowing budget deficit.
He says budget cuts will no longer be necessary as the country’s budget deficit is expected to narrow from 4.9% of GDP in the current year to 4.1% next year.
National Treasury Acting Director General Ismail Momoniat says a reduction in the deficit frees up funds for other critical investments.
Momoniat says, “It’s a primary budget surplus, so where your revenue is acceding the non-interest spending, so we take out the debt servicing, so that’s a great achievement that we have next year and that begins to flatten your debt to GDP so we begin to stabilise that. You know, I think we’ve been really successful on the fiscal consolidation and in a sense are going to begin to enjoy the fruits of that from next year and beyond.”
VIDEO: Finance Minister Enoch Godongwana’s MTBPS:
Additional reporting by Naledi Ngcobo.