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‘Out of every R5 collected in main budget revenue, R1 is paid to lenders. These rising debt-service costs now take a bigger share of the budget than basic education, social protection and health,’ Godongwana said.

Some key highlights from today’s Medium-Term Budget Policy Statement presented by Finance Minister Enoch Godongwana:

Revenue Shortfall: A significant revenue shortfall of R56.8 billion in the current fiscal year, mainly due to lower commodity prices and unexpected VAT refund claims.

Spending Cuts: Finance ministry takes action by cutting state spending by R85 billion and accelerating efforts to stimulate economic growth through private sector involvement and addressing issues with state-owned enterprises like Eskom and Transnet.

Budget Surplus Objective: Finance Minister Enoch Godongwana aims to achieve the country’s first Primary Budget Surplus since 2008, excluding interest payments. This move is viewed as a modest step forward.

COVID-19 Relief Grant: Despite funding uncertainties, the government extends the politically charged COVID-19 social relief grant.

Borrowing Plans: The government plans to borrow an average of R554 billion annually to cover budget deficits, debt redemptions, and the Eskom bailout.

Debt-to-GDP Ratio: The debt-to-GDP ratio is projected to rise to 77.7% in 2026, primarily due to the 2023 public wage service agreement and a decline in mining sector tax revenues.

Deficit Projection: The deficit is expected to reach 4.9% of GDP in 2023/24, with the gross loan debt expected to stabilize at 77.7% of GDP by 2025/26.

Reduced Spending: Treasury has reduced spending by R21bn in the current financial year and further reductions of R64bn in 2024/25 and R69bn in 2025/26 are proposed.

Economic Growth Challenges: South Africa’s economic growth outlook remains weak, and the nation remains susceptible to external economic shocks.

Key Challenges: Challenges such as power cuts, inadequate rail transport, inflation, and rising borrowing costs are hindering economic expansion.

In summary, South Africa’s fiscal difficulties are rooted in the current weak economic growth trajectory , leading to weaker revenue receipts (tax collections) and higher debt with an increased debt-servicing burden.