Deloitte South Africa chief economist Hannah Marais says South Africa’s public finances, both current and outlook, have weakened significantly in 2023. Picture: Timothy Bernard/ Independent Newspapers
Deloitte has warned South Africans to prepare for “short-term” pain as the government will have to continue implementing expenditure cuts in a bid to stabilise the country’s unsustainable debt burden.
In its pre-Budget briefing yesterday, the auditing firm advised that maintaining a fiscal policy stance that stabilised debt would unlock much-needed growth and, in turn, address many social and developmental woes the country faced.
Deloitte South Africa chief economist Hannah Marais said South Africa’s public finances, both current and outlook, had weakened significantly in 2023 as the National Treasury now expected a Budget deficit of R56.8 billion.
Hannah said this meant that gross debt was expected to rise to 77.7% of gross domestic product (GDP) in the 2025/26 fiscal year, with the budget deficit increasing to 4.9% of GDP, up from the 4% estimated a year ago.
All the while the real GDP growth is forecast at 1% in 2024 and, on average, only 1.4% between 2024 and 2026, well below the outlook for advanced economies of 1.7%.
“I think the important thing is that the options are cutting expenditure or increasing revenues, and I think on both we have a lot of pressures. It has become difficult now to service the debt,” Marais said.
“So there might need to be some short-term pain that needs to be put in place to make sure that we get to stabilise debt. I mean, it's not going to stabilise this year. It's probably going to stabilise in the next three or five years, but then to create that fiscal space and to not take on debt that is more expensive, because it keeps on creeping into particularly social expenditure, as well as investing in the future infrastructure.”
South Africa will need to borrow an average of R553bn per year over the medium term to finance its programmes.
According to the Treasury, one in every five rand collected in tax revenue is spent on servicing the debt.
Finance Minister Enoch Godongwana will this month table the 2024/25 national Budget amid a number of competing spending priorities such as a permanent basic income grant, the National Health Insurance (NHI) scheme.
In November, Godongwana warned that the government would need to tighten its belt and implement budget cuts amid lower-than-expected revenues were not hollow.
However, some analysts and ratings agencies believe that the government might delay implementing its reform agenda this year as it commits to higher social expenditure to fulfil election promises.
Deloitte’s government and healthcare industry leader, George Tshesane, said South Africa was facing a double whammy of a declining tax base while government expenditure demands were increasing.
Tshedsane said it was easy to believe there would be no appetite for tightening belts in areas that matter such as right-sizing the Cabinet, but government borrowing would continue in the absence of deep cuts.
He said rising costs were a function of several things, including irregular and wasteful expenditure, an increasing public wage bill, and a growing need to provide a more extensive social welfare net, among others.
“There's a lot of inefficiency in the system. Every year the Auditor-General comes out with a report, and when you look at the numbers, wasteful expenditure is trending up. It's not getting better. We are dealing with a recipe for disaster or the perfect ingredients for a fiscal storm,” Tshesane said.
“The government has to go on a substantial cost-saving exercise to avert the storm or a deterioration in the fiscal situation.
“But that may not be feasible in an election year, and it is a route the government has historically avoided. A genuine cost-saving effort may not be palatable for all as it may mean job cuts in the public sector.”
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