The National Treasury projects that the country’s economy will grow by 4.8% in 2021 and 2.1% in 2022. Treasury notes that higher than anticipated growth in revenue has helped to narrow the budget deficit and debt.
Finance Minister Enoch Godongwana says the fiscal outlook is subject to significant risks including slowing global and domestic economic growth, more difficult global borrowing conditions, and calls for a permanent increase in social protection that exceeds available resources.
Budget Speech 2022:
Tax revenue collections have outperformed last year’s budget projections. A revenue over-collection of R182 billion was achieved in the current financial year. Godongwana says government will use a portion of the additional revenue to accelerate debt stabilisation, promote job creation and support the public health sector.
“This positive surprise has come mainly from the mining sector due to higher commodity prices. The improved revenue performance is not a reflection of an improvement in the capacity of our economy. As such, we cannot plan permanent expenditure on the basis of short-term increases in commodity prices. To be clear, any permanent increases in spending should be financed in a way that does not worsen the budget deficit.”
Minister of Finance Enoch Godongwana tables Budget Speech in Parliament:
The consolidated budget deficit for this year declined from 8.5% to 5.7% of the Gross Domestic Product (GDP). The deficit is projected to narrow from 6% of GDP next year, to 4.4 % of GDP.
“This is also the first time since 2015 that we are reducing the borrowing requirement, using some of the extra revenue we have collected. The borrowing decreases by R135.8 billion this year and a total of R131.5 billion over the next two years. Though this fiscal outlook has improved it is subject to significant risks. These include among others, pressure from the public service wage bill, calls for financial support from distressed state-owned entities.”
South Africa’s debt-to-GDP ratio is expected to increase from 69.5% of GDP in the current financial year to 75% of GDP by 2024-25. Godongwana elaborates.
“This year, government debt has reached R4.3 trillion and is projected to rise to R5.4 trillion over the medium-term. This huge sum is owed to lenders domestically and around the world. It incurs large debt-service costs; averaging R330 billion annually over the MTEF.”
Spending has increased by R282 billion compared to the 2021 budget. The largest allocation of additional funds went to the extension of the COVID-19 social distress grant, which will now continue until March next year.