South Africa

South Africa’s R347 billion fiscal gap

The National Treasury has revealed a R347.4 billion deficit following a continued deterioration in revenue collection and increased expenditure.

This was revealed in Finance Minister Enoch Godongwana’s 2024 Budget Speech, which outlined the country’s financial health.

“Compared to a year ago, the budget deficit for 2023/24 is estimated to worsen from 4% to 4.9% of GDP,” said Godongwana.

However, the minister said the deficit will begin to improve from the next fiscal year and will reach 3.3% of GDP by 2026/27.

To fund this deficit, the government will have to issue more debt and add to its already unsustainable debt pile.

The government increased local debt issuance in 2023 despite many investors dumping local bonds in reaction to South Africa’s geopolitical blunders, increased load-shedding and deteriorating trade balance.

Prominent banking CEOs have warned that the government’s financial situation is deteriorating rapidly, with it potentially resulting in a fiscal cliff.

FirstRand CEO Alan Pullinger

FirstRand CEO Alan Pullinger said he expects the government to continue to issue more debt to finance its growing fiscal deficit. 

“The commodity boom is now over, and the rest of the economy has not been able to fill the gap. How do you fill the gap? I think the government has to issue more debt,” Pullinger said to Business Times

“This is not good because, as you know, when we take on debt, we have to service it – there are interest costs that come with the debt, and it has to be repaid at some point.” 

Echoing concerns from Pullinger, Nedbank CEO Mike Brown flagged his concern with the government’s rising debt and the interest payments needed to service it. 

Brown said this increases the risk premium attached to investing in South African assets as the debt burden is unsustainable, raising questions over whether the government can meet its obligations. 

Apart from a growing debt burden, the risk premium has been driven up by load-shedding, logistics constraints, crime and corruption, and questions over the country’s foreign policy.

The rising risk premium has resulted in the demand for government bonds from foreign investors falling. 

“When you’ve got more sellers than buyers, the price goes up, and when the price of bonds goes up, the cost of capital goes up,” Brown said.

“That is negative for investment because investments have to meet a higher hurdle rate. That is a huge concern.”

Michael Sachs
Professor Michael Sachs

Former head of the budget office at the National Treasury, Professor Michael Sachs, also warned that South Africa’s economic crisis is manifesting itself as a fiscal crisis.

Sachs is an adjunct professor and head of the Public Economy Project at the University of Witwatersrand’s Southern Centre for Inequality Studies.

He previously told Parliament that Finance Minister Enoch Godongwana had effectively created an entirely new budget in the Medium-Term Budget Policy Statement.

“South Africa’s economic growth crisis is manifesting as a fiscal crisis and austerity measures, which have been ineffective in stabilising debt over the last ten years,” he said.

Spending cuts contribute towards lower aggregate demand, lower growth and a weakened state. It is also unlikely that debt can be stabilised while GDP per capita continues to fall.

This crisis is deepening due to South Africa’s poor economic performance, high interest rates, and global uncertainty.


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