Budget Review February 2024 | How to sidestep a fiscal cliff on the near horizon

The February 2024 budget was primarily aimed at fiscal consolidation amidst sluggish economic growth. The increasing debt trajectory, coupled with high funding costs due to a substantial gross financing need and elevated country risk premium, prompted the National Treasury to activate the Government Finance Emergency Contingency Reserve Account (GFECRA). By deploying GFECRA, R150 billion will be distributed to the National Treasury, which is expected to reduce debt servicing costs by R33 billion over the Medium-Term Expenditure Framework (MTEF) period.

Although the GDP growth rate is forecasted to improve to 1.3% in 2024 from an estimated 0.6% in 2023, partly thanks to reduced load shedding and anticipated interest rate cuts in the second half of 2024, this level of growth remains insufficient. More robust economic expansion is necessary to stimulate private sector fixed investment and employment. Emphasis has also been placed on the private sector’s involvement in improving South Africa’s infrastructure. The urgency of accelerating reforms is highlighted, as the use of GFECRA is seen as a temporary measure to maintain financial stability while awaiting the acceleration of economic growth.

The application of GFECRA funds has enabled the National Treasury to redirect savings from debt servicing towards the public sector wage bill, particularly in labour-intensive departments. However, there is concern regarding the reduction in the capital expenditure (capex) budget throughout the MTEF period, despite the fact that its average growth rate of 10% outpaces the current spending growth rate of 5%.