Ratings agencies: SA’s fiscal slippage will be under the spotlight

Minister of Finance Enoch Godongwana delivering his Budget Speech. Picture: Ayanda Ndamane / Independent Newspapers

Minister of Finance Enoch Godongwana delivering his Budget Speech. Picture: Ayanda Ndamane / Independent Newspapers

Published Feb 22, 2024


South Africa’s credit ratings status will come under serious scrutiny in the weeks ahead on the back of fiscal slippage as the government borrowing continues to exceed tax revenue collected by the end of the 2023/24 financial year.

According to the 2024 Budget Review tabled in Parliament yesterday, gross loan debt has grown from R1.58 trillion in 2013/14 to R5.21trl in 2023/24.

As a percentage of gross domestic product (GDP), the government gross loan debt is currently at its highest point since 1947, and the debt‐to‐GDP trajectory is about 16 percentage points higher than the median emerging market level.

Finance Minister Enoch Godongwana yesterday said the 2023/24 main budget deficit - government expenditures which exceed revenues - was now projected at 4.7% of GDP, compared with 3.9% in the 2023 Budget, mainly due to lower revenue.

Godongwana said that in 2023/24, debt‐service costs absorbed more than 20 cents of every rand collected in revenue for the first time since 2000/01, also warning that this metric will persist over the medium term.

“Compared to a year ago, the budget deficit for 2023/24 is estimated to worsen from 4% to 4.9% of GDP. The higher budget deficit means that debt-service costs in 2023/24 have been revised higher, by R15.7 billion to R356bn,” Godongwana said

“Debt-service costs will absorb more than 20% of revenue. To put this into perspective, spending on debt-service costs is greater than the respective budgets of social protection, health, or peace and security.”

The government continues to collect less tax revenue as a result of moribund economic activity.

At R1.73 trillion, tax revenue for 2023/24 is R56.1bn lower than estimated in the 2023 Budget largely due to the decline in corporate profits and revenue from taxes on mining.

However, revenue projections are R45.6 billion higher than the 2023 Medium-Term Budget Policy Statement (MTBPS) estimates over the medium term, which increased personal income tax and additional medium term revenue proposals.

The government is projected to spend R2.37rtl for 2024/25 financial year while revenue collection is seen at R2.04trl during the same period.

Fiscal metrics are one of the most important elements in evaluating the country’s ability to repay its debt - credit ratings status - and South Africa’s sovereign credit ratings largely remain at sub-investment level by all major ratings agencies, albeit with a stable outlook.

For this reason, Godongwana said the National Treasury would strengthen its strategy and stick to its fiscal goals, which would support economic growth and reduce risks to the economy while ensuring fiscal sustainability.

This is why the government will reduce the amount of money it is borrowing, the gross borrowing requirement for the next fiscal year seen at R457.7bn compared with R559.6bn envisaged in November.

As a result, Godongwana said the consolidated budget deficit was projected to narrow from 4.9% of GDP in 2023/24 to 3.3% by the end of the 2024 medium‐term expenditure framework (MTEF) period.

Compared to the MTBPS, the government will be adding R57.6bn to pay for the salaries of teachers, nurses and doctors, among many other critical services.

“Over time, as the debt burden decreases, maintaining this critical benchmark will create fiscal space. Even with the spending increases, the national government gross borrowing requirement will decline, from R457.7bn in 2024/25 to R428.5bn in 2026/27,” he said.

“The deficit will begin to improve from 2024/25, to an estimated 4.5% of GDP, reaching 3.3% by 2026/27. Debt will now peak at 75.3% of GDP in 2025/26 as opposed to 77.7% previously forecast in November, with debt‐service costs as a share of revenue peaking in the same year.”

Godongwana said the fiscal strategy was focused on debt-stabilisation while achieving a primary surplus.

“This year, for the first time since 2008/09 global financial crisis, government will achieve a primary budget surplus – meaning revenue exceeds non‐interest spending

“Relative to the 2023 MTBPS projections, improvements are achieved in the main budget primary surplus and the budget deficit from 2025/26 due to higher revenue and lower debt-service costs.”