On 19 February, South Africa’s (SA’s) Minister of Finance Enoch Godongwana will deliver the 2025 Budget Speech to the National Assembly in Parliament. This year’s budget will be tabled against a global backdrop of heightened political and economic uncertainty while domestic fundamentals continue to show resilience. Although geopolitical tensions with the US remain a key risk, the local economy has entered the year with notable momentum, supported by easing inflation, a more accommodative monetary policy, a stable electricity supply, and improving business and consumer confidence. Structural reforms are progressing, and while logistical bottlenecks persist, operational improvements are becoming increasingly evident—albeit somewhat overshadowed by external volatility.
Encouragingly, the Government of National Unity (GNU) appears to be holding up, adding a degree of political stability that supports ongoing economic reform efforts. However, global risks have escalated significantly, particularly following a series of executive orders by US President Donald Trump. These include tariff hikes on select US imports and retaliatory measures from affected countries, adding to trade uncertainties. More concerningly for SA, the US has issued an executive order to cease all aid to the country, raising the risk of further, potentially more damaging, SA-specific measures. Should National Treasury absorb any of the costs previously covered by US aid, this could introduce additional fiscal pressure and reinforce a conservative budget stance.
Despite these challenges, seasonally adjusted tax revenues for the year to date remain in line with Treasury’s latest forecasts for FY24/FY25. We expect the government’s growth and revenue projections to be largely unchanged, though downside risks to the medium-term outlook have increased materially. Expenditure has also been contained and remains on track to meet fiscal targets, but notable risks have emerged, including:
- The withdrawal of US aid/assistance to SA: Potential fiscal costs if Treasury assumes financial responsibilities previously funded by the US.
- The public sector wage bill: A higher-than-budgeted wage offer to public sector employees poses an upside risk. However, some costs may be absorbed through employment restraint or budget reallocations—options that are becoming increasingly constrained.
- Social grants: A recent High Court ruling to relax the eligibility criteria for the Social Relief of Distress (SRD) grant and to progressively increase the grant to align with inflation and the cost of living presents another spending risk. While this decision is currently suspended pending appeal, it could impact National Treasury’s attempts to contain expenditure.
- State-owned enterprises (SOEs): Transnet has indicated that it requires R50bn from the government over three years. However, some of this could be sourced from the Budget Facility for Infrastructure (BFI, a budget reform initiative to support priority infrastructure projects) with minimal additional fiscal impact. Eskom’s debt swap may be converted into a loan spread over the forecast period.
The additional spending pressures, coupled with the likely conversion of Eskom’s debt swap into a loan, must be balanced against available funding sources. However, National Treasury’s expected overfunding in the bond market should help mitigate these pressures. Despite the growing headwinds, we still see potential for positive sovereign credit rating action in the future, contingent on continued progress in growth-supportive policy reforms and fiscal consolidation. However, given the recent escalation of economic and fiscal risks, such upgrades are unlikely in the near term. Furthermore, regarding the greylisting outlook, the government has indicated that meeting the June 2025 deadline for FATF compliance is unlikely. With several key reforms still in progress, greylisting may remain in effect until at least 4Q25, thereby extending the timeline for achieving full compliance.
Regardless, amidst all these factors, and in anticipation of the upcoming tabling of the 2025 Budget, the points highlighted below form part of our wish list, or set of ideals, for this year’s Budget:
- No budget reduction for the National Prosecuting Authority (NPA) or, better yet, allocating more money to the NPA and the Special Investigating Unit (SIU) to continue the fight against corruption and state capture at large.
- A continued demonstration of the government’s intention to follow a path of fiscal consolidation with difficult actions rather than simply words.
- Potential fiscal costs if Treasury assumes financial responsibilities previously funded by US aid programmes.
- A credible plan that controls debt accumulation and where debt levels begin to come down rather than escalating at a slower pace.
- A demonstration of additional measures to improve the ease of doing business in SA.
- Further details surrounding potential liabilities of the Road Accident Fund (RAF), as well as other SOEs, which are currently in distress, including Denel, the Land and Agricultural Development Bank of SA (Land Bank), the SA National Roads Agency (SANRAL), etc.
- Detailed plans to address the financial distress of municipalities nationwide.
- Clarity surrounding the future of the SRD grant – will it finally be formalised into a basic income grant? Will the benefit level be raised?
- Clarity around the funding structures of the latest bills that have been passed- namely the National Health Insurance (NHI) Bill and the Expropriation Bill.
- An update on the long-awaited fiscal rule framework.
Whether any of the abovementioned wish list items will come to fruition remains to be seen. Plenty of other fiscal-related issues also need to be addressed, and this list is by no means exhaustive. Interestingly, the abovementioned points are relatively unchanged from the wish list we released before the 2024 February Budget and Medium Budget Policy Statement (MTBPS) – indicative of the many uncertainties and unanswered questions in SA’s fiscal space. Overall, reining in new expenditure pressures is key, as is making savings, avoiding wastage, inefficiency, and inappropriate spending, focusing on economic growth-creating initiatives, and collectively navigating the increasingly uncertain global geopolitical environment.
