By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
The Minister of Finance has presented the 2024 Medium-Term Budget Policy Statement (MTBPS), the first under the Government of National Unity (GNU). This mini-budget arrives at a pivotal moment as South Africa's economy benefits from a stable global environment, structural reforms, improved electricity supply, and growing cautious optimism in the GNU's leadership.
Key priorities in the MTBPS aim to drive sustained economic growth, focusing on maintaining macroeconomic stability, advancing structural reforms, enhancing state capacity, and prioritising growth-oriented public-sector infrastructure1 investment over the medium term. National Treasury forecasts GDP growth to lift from a revised 1.1% (previously 1.3%) in 2024 to 1.9% by 2027 (Figure 1), averaging 1.8% from 2025 to 2027—an improvement from the previous three-year average of 1.2%. This reflects signs of economic stabilisation following a 2023 low of 0.7%, compounded by severe electricity supply disruptions and high cost-of-living pressures. Inflation, having declined from 7.8% in July 2022 to 3.8% in September 2024, has created room for interest rate cuts by the South African Reserve Bank (SARB). Treasury projects inflation to be stable around the midpoint target, at 4.6% in 2024, moderating to 4.4% in 2025, and levelling at 4.5% from 2026 onwards (Figure 2).
Fiscal risks and revenue shortfalls
Treasury highlights elevated fiscal risks, including potentially lower revenue growth from economic slowdowns, high public-sector wage demands, elevated borrowing costs, and slower-than-expected reductions in global interest rates. Public sector deficits, especially in state-owned enterprises, may also require increased budgetary support.
Due to subdued economic growth, a reduced fuel levy, and reduced VAT collections, Treasury has revised the 2024/25 gross tax revenue down by R22.3 billion. Over the next two fiscal years, gross tax revenue is projected to fall short by R41.4 billion relative to the 2024 Budget. Revenue adjustments for 2024/25 include:
Offsetting these declines are increases in:
Overall, the main budget revenue for 2024/25 is now projected to be R17.7 billion, below initial estimates (Figure 3).
Non-interest expenditure adjustments and outlook
The R10.4 billion increase in non-interest expenditure primarily supports (Figure 3) the R5.02 billion debt repayment for SANRAL's Gauteng Freeway Improvement Project, including R546 million for maintenance backlogs, as well as R2.66 billion to cater for the increase in the Covid-19 Social Relief Grant from R350 to R370, as highlighted in the 2024 Budget. And R2.1 billion for SANDF operations in the DRC. These increases are partially offset by a R5 billion drawdown from the contingency reserve and projected underspending of R2.9 billion.
Over the medium term, non-interest expenditure is expected to rise by R32.4 billion, including R10.1 billion for SANRAL debt repayment, R3.5 billion for SANDF deployments, and an additional allocation of R11 billion to manage the wage bill2, which is projected to fall to 31.4% of consolidated spending by 2027/28 from 35.7% in 2013/14.
Consolidated government expenditure is projected to grow by 4.9% annually from 2024/25 to 2027/28, reaching R2.77 trillion. Capital asset investments will rise more rapidly, at 10.6%, reflecting the government's focus on infrastructure investment. Debt-servicing costs increase by 6.9% but peak at 21.7% of revenue in 2025/26, still roughly consuming R22 out of every R100 in revenue by 2027/28. Spending on goods and services is projected to rise by 5.4% annually to support SMME development and enhance service delivery.
The government will continue to control growth in the public service wage bill, ensuring fair compensation for public servants while implementing measures to contain overall costs. The wage bill has decreased from 35.7% of consolidated spending in 2013/14 to 32.1% in 2023/24, with a projection of 31.4% by 2027/28.
Budget balance and debt trajectory
Weaker-than-expected revenue projections combined with the net R10.4 billion upward revision in non-interest expenditure in 2024/25 implies that the budget primary surplus will still be maintained in 2024/25 but at 0.4% of GDP compared to the 0.8% envisaged at the 2024 Budget. However, the surplus is expected to improve steadily over the forecast period, reaching 1.8% of GDP by 2027/28, remaining a key anchor for debt stabilisation. Factoring in an additional R6.7 billion in higher-than-expected debt-service costs, the main budget deficit widens to 4.7% of GDP, up from the previously estimated 4.3%. Importantly, the deficit narrows progressively, reaching 3.4% of GDP by 2027/28 (Figure 4).
Gross debt is forecast to peak at 75.5% of GDP in 2025/26 (revised from 75.3%, see Figure 5), reflecting a slightly higher trajectory due to the larger deficit and growing debt redemptions. Debt redemptions are projected to rise significantly, from R173.7 billion in 2025/26 to R306 billion by 2027/28, averaging R211.5 billion annually over the medium term, posing refinancing and cost risks.
Real economy implications
Government's commitment to macroeconomic stability, focus on structural reforms and infrastructure investments should improve the business operating environment, bolstering business and consumer confidence. With its entire value chain, the broader construction sector should find support from the prioritisation of public-sector infrastructure investment, with positive spillovers to the rest of the economy. The MTBPS affirms our view that there will be no further sovereign credit rating downgrades, but also no upgrades anytime soon.
Financial markets implications
On balance, the MTBPS was more negative for bonds than for equities.
For bonds:
For equities:
As the minister spoke, the rand weakened from about R17.59 to the US dollar to as high as R17.76, and bond yields rose across the curve. The JSE did not react much, although there was some downward pressure on the SA Inc segments of the market - largely explained by the rand and bond yield movements.
