National Treasury consistently overestimated South Africa’s economic growth

The National Treasury has consistently overestimated South Africa’s economic growth over the past 15 years, expecting faster growth from a stagnating economy. 

Over the past decade, the Treasury has expected average annual growth for the local economy of 1.57%, while the reported growth has been 0.8%. 

This is skewed slightly by the figures for 2020, when the COVID-19 pandemic hit South Africa and heavily impacted economic growth. The Treasury removed its forecast for that year in a supplementary Budget. 

However, even when excluding 2020 entirely, the Treasury’s growth forecasts overestimate economic growth in South Africa by around 0.2%. 

While this gap appears quite small, it has significant implications for South Africa’s R2.1 trillion Budget, as the forecasts impact nearly every financial metric. 

If the forecasts are overestimated, the financial outcome at the end of the fiscal year will be worse than anticipated, impacting the National Treasury’s credibility and the country’s financial health. 

For example, the Treasury’s forecasted GDP informs its calculation of the country’s debt-to-GDP ratio, which has ballooned over the past decade. 

With GDP growth being overestimated, the debt-to-GDP ratio at the end of the year is typically worse than initially forecasted. This, in turn, impacts estimates of when the country’s debt burden will stabilise. 

In the case of this metric, the worse-than-expected outcome is also impacted by increased spending pressures throughout a financial year, which results in an increased debt burden. 

Perhaps most importantly, the Treasury’s economic growth forecast calculates the government’s expected tax revenue for the year. 

This expected revenue is then used to determine the government’s spending for the fiscal year, with the Treasury explicitly aiming to keep expenditure below tax revenue to run a primary budget surplus. 

The graph below shows the difference between the National Treasury’s growth forecasts for each financial year over the past 15 years and the reported GDP from Statistics South Africa at the end of the year. 

Treasury’s plan to fix South Africa’s financial mess

South Africa’s finances have deteriorated rapidly over the past decade, with increased government spending not translating into faster economic growth. 

As a result, the country’s debt burden has surged to over 76% of GDP and is forecast to peak at 77.4% in the current financial year. 

In the 2008/09 financial year, gross loan debt amounted to R627 billion or 26% of GDP, with net loan debt at R526 billion or 21.8% of GDP.

The last time the country posted a budget surplus was the 2007/2008 financial year, after which the government has run 16 years of full budget deficits.

This rapid growth in government debt and South Africa’s decline into junk status have skyrocketed the country’s debt-servicing costs. 

Debt-servicing costs are now one of the largest spending items in the country’s Budget and are the fastest-growing line item. 

Currently, 22 cents of every rand collected by SARS from individual taxpayers, VAT, companies, and other sources goes towards paying interest on the government’s debt. 

This has begun to crowd out spending in other key areas of the economy and will impact South Africa’s significant social wage.

Finance Minister Enoch Godongwana revealed in his Budget Speech on 21 May 2025 that debt-servicing costs will reach R426.3 billion in the coming financial year.

This is more than the government is expected to spend on economic development, community development, or peace and security.

This translates into over R1 billion a day, and its growth is expected to continue. Interest on the government’s debt is the fastest-growing expenditure item in the Budget.

The National Treasury plans to tackle this through fiscal consolidation, by limiting spending growth to run a primary budget surplus. 

Coupled with this are plans to capacitate SARS and enable the revenue service to tackle South Africa’s estimated R800 billion tax gap. 

The Treasury expects to maintain a primary surplus in the current fiscal year, meaning that tax revenue is projected to exceed non-interest spending. It is expected to rise over the medium term from 0.7% to 2.1% in 2027/28.

Over time, this should result in the country’s debt burden stabilising and eventually being reduced.