The Medium-Term Budget in a Nutshell

  • The good news is SA Treasury’s tax revenues have surged due to the commodity price boom with R128bn more flowing into the national coffers than was anticipated in February. The bad news is that all but R20bn of this been spent with government spending now likely to be 5,4% higher in the current fiscal year than projected in the official Budget (see below).

  • Stats SA’s recent upward revision of the official GDP by R490bn has had a positive (although only cosmetic) impact on critical ratios. The R20bn windfall not spent ensure the Budget Deficit (above) contracted only slightly to 9% from February’s projection. It was a record 14% in 2020 (although only 10% on the new data). After the adjustment to GDP, SA’s official debt-to-GDP is now projected at 7.8%. (see below).


  • To extricate the country from this hole, spending will have to remain “restrained” over the next three years by government avoiding permanent increases in baseline costs (ie wages)  or further bailouts of SOEs. Maintaining this course would resulting in a projected “primary” budget surplus – ie revenue higher than non-interest spending – by 2024/25. (see below). Any revenue windfalls will be used to reduce the budget deficit, support poor households and temporary public employment programmes.

  • SA’s gross debt is projected to peak at 78.1 per cent of GDP in 2025/26 and decline thereafter. But even in this scenario, debt-service costs to only fall below 22c in every rand or tax raised by 2026/27. Addressing debt is urgently required as the growth in SA’s debt-to-GDP ratio over the past three years has been among the highest of all developing countries (see below).

  • The Basic Income Grant proposal is off the table. Treasury notes that SA already spends a higher percentage of GDP on cash grants than “the vast majority of developing countries” with 18.3m beneficiaries (excluding the COVID-19 relief). New spending proposals like this one would require existing commitments to be closed or through higher taxes – and neither has scope given the weak public finances.
  • Of the R109bn overspending by government relative to the February’s Budget, R20bn was due to the higher than anticipated settlement on public sector wages; and R37.9bn went directly onto COVID-19 related relief, primarily through additional social grants (see below).

  • Real GDP is forecast to grow 5.1% in 2021 (1.8 percentage points higher than expected in Feb). Rebound after 6.4% contraction in 2020. Modest growth in 2022, 2023 and 2024, averaging 1.7% pa.
  • An update on Retirement Reforms. Government is planning to introduce a dual system where part of the now inaccessible retirement funds will be available. The intention is to implement a “two pot” system where individuals will be able to withdraw from one pot but the other would be preserved until retirement. A discussion document will be published soon and further announcements will be made in the 2022 Budget (in Feb next year).

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