South Africa is on the brink of achieving a significant milestone as it edges closer to its first primary budget surplus in 15 years, signalling a potential turnaround in the country’s fiscal trajectory and offering a glimmer of hope amid economic challenges.
Initial data suggests that South Africa’s primary surplus reached 0.4% of the gross domestic product (GDP) for the fiscal year ending March 2024, aligning with earlier projections by the National Treasury. Additionally, the Treasury reported a marginally improved main budget deficit of 4.6% of GDP for the 2023-24 period, a modest improvement from the 4.7% shortfall forecasted in February.
This positive development comes as a welcome relief for the ruling African National Congress (ANC), which faces mounting pressure amid concerns of economic mismanagement ahead of the national elections on May 29. The prospect of attaining a primary surplus could bolster investor confidence and mitigate apprehensions surrounding South Africa’s escalating debt burden, which currently poses a significant risk to the country’s fiscal stability.
According to the Treasury, debt-service costs currently consume a considerable portion of government revenue, surpassing allocations for critical sectors such as education, social protection, and health. The achievement of a primary surplus, the first since the global financial crisis, offers a ray of hope for stabilizing the country’s debt levels and restoring fiscal resilience, as noted by Yvonne Mhango, Bloomberg Africa economist. However, the sustainability of this trend hinges on consistent fiscal discipline and prudent management in the years ahead.
In pursuit of debt stabilization, the Treasury has outlined ambitious targets to reduce debt to 75.3% of GDP by 2025-26, leveraging reserves and implementing innovative fiscal strategies. Contributing factors to the positive fiscal outlook include a notable surplus in the monthly budget and higher-than-expected tax revenues. The final results for these key indicators will be unveiled in the medium-term budget policy statement slated for October.
While the Treasury has refrained from disclosing its GDP forecast for the first quarter, its outlook for the year surpasses projections by the International Monetary Fund, underscoring cautious optimism for South Africa’s economic recovery trajectory.
