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National Treasury expects South Africa’s real GDP growth to slow to 0,8 percent in 2023, as economic performance slips in the face of weaker household consumption — strangled by a high cost of living, persistent power crisis, deteriorating infrastructure and mounting debt which is being enflamed by rising borrowing costs.

The finance department presented a bleaker economic picture for South Africa when it tabled the 2023 Medium-Term Budget Policy Statement (MTBPS) yesterday.

The department’s forecast represents a slight downward revision on the 0,9 percent growth which was forecast at the beginning of the year in the 2023 Budget Review. While coming in higher than the 0,7 percent growth forecast projected by the South African Reserve Bank’s (Sarb) Monetary Policy Committee (MPC) in September. However, Treasury noted that it expects the economic environment to improve over the next three years, forecasting real GDP growth to pick up to 1 percent in 2024, 1,6 percent in 2024 and peak at 1,8 percent in 2026.

Treasury projects the budget deficit to reach 4,9 percent of GDP in 2023/23 and later narrow to 3,6 percent by 2026/27.

According to the ministry, gross loan debt is expected to peak at 77,7 percent of GDP in 2025/26, higher than the 73,6 percent Treasury forecasted for that same year during the 2023 Budget Review.

The county’s fiscal outlook has been hampered by the underperformance of corporate tax collections — as the country comes off the high of the commodities boom of previous years — and the weakening of the revenue outlook.  At the same time, the public purse has been burdened by elevated borrowing costs, with Treasury noting that over 20 percent of main budget revenue is now being dedicated to servicing debt.

Treasury expects debt-servicing costs to reach R385,9 billion in 2024/25 and R455,9 billion in 2026/27, as a result. Over the MTEF government projects it will have R1,3 trillion in interest costs on its hands.

“Our challenge is that rising debt services costs are crowding out important social spending, and our economy has not grown fast enough to support increasing expenditure or our current debt levels,” Enoch Godongwana said in the statement.

To get South Africa out of the economic rut it finds itself, Treasury says it will need to adopt a prudent fiscal stance which includes a focus on reduced spending and the stabilisation of public debt.

This, it says, is the only way to support confidence and growth, as not doing so would weaken the economy’s ability to withstand external shocks.

“The MTBPS also recognises that government must respect the budget constraint to preserve the sustainability of government services that are being crowded out by debt service costs,” Godongwana said.

“We propose a strategy of spending adjustments based on policy priorities and a reconfiguration and rationalisation of the state, which includes closing or merging ineffective entities and programmes and enhancing the complementarity of its functions.” — Moneyweb.