Medium Term Budget: Weaker growth, but there is “reason for hope”

South Africa’s medium term economic growth remains weak as a result of the cumulative cost of “power cuts, the poor performance of the logistics sector, high inflation, rising borrowing costs and a weaker global environment”.

This according to Finance Minister Enoch Godongwana who delivered the Medium Term Budget Policy Statement (MTBPS) in Parliament on Wednesday (1 November 2023).

National Treasury has forecast a real Gross Domestic Product (GDP) growth of some 0.8% in 2023 with growth forecast at 1.4% between 2024 and 2026.

“This is 0.1 percentage points lower than the growth projection at the time of the 2023 Budget. These growth rates are not sufficient to achieve our desired levels of development,” Godongwana said.

Global growth forecasts are also lower at 3% in 2023 from a projected 3.5% in 2022.

“The weaker growth outlook for China, South Africa’s largest trading partner; the lower commodity prices; and the risk that the US interest rates will remain higher for longer, means the global economic environment is less supportive of South Africa’s growth prospects,” he said.

The Minister explained that since February, risks to the South African economy – including the decline in commodity prices, increased inflation, a weaker Rand – have materialised and as a result public finances are significantly weaker.

“The main budget deficit has increased by R54.7 billion compared with the 2023 Budget estimates. This reflects lower revenue performance, higher wage bill costs and higher projected debt-service costs. The main reasons for this are a sharp fall in corporate income tax, particularly from the mining sector, although personal income tax collection was better than forecast.

“The result of the shortfall is a substantial worsening in the main budget deficit in the current fiscal year. We are now projecting a deficit of 4.9 percent of GDP compared to our previous estimate of 4.0 percent. Under these circumstances, measures to stabilise public finances and reform the economy to generate higher growth are essential,” he said.

The Minister said the most effective way of funding government is through an efficient tax administration and by broadening the tax base.

“SARS will continue its focus on enforcing compliance in areas such as debt collection, fraud prevention, curbing illicit trade, voluntary disclosures, and encouraging honest taxpayers to comply voluntarily.

“Every additional Rand of revenue collected is one Rand less which we have to borrow,” he said.

Godongwana insisted that despite several challenges, the South African economy has showed signs of resilience with real GDP now exceeding pre-COVID-19 pandemic levels.

“In the first half of the year, the economy grew by 0.9 percent despite record levels of load shedding. The tourism sector grew more than 70 percent in the period, driven by the arrival of more than five million international tourists.

“Agriculture expanded by 7.8 percent in the period compared to 2022, while the construction, transport and communications sectors also achieved strong growth. In the words of the President, these are the reasons for hope,” Godongwana said.

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