South Africa’s medium-term economic growth remains weak, but the economy has shown signs of resilience, Finance Minister Enoch Godongwana said here on Wednesday.
Godongwana made the remarks in the Medium Term Budget Policy Statement he delivered to the parliament in Cape Town, the legislative capital of South Africa.
The minister acknowledged the persistently weak economic outlook, attributing it to various factors, including power cuts, poor logistics sector performance, high inflation, rising borrowing costs, and a weaker global environment. South Africa’s National Treasury has forecast a real gross domestic product (GDP) growth of some 0.8 percent in 2023, with growth forecast at 1.4 percent between 2024 and 2026.
“This is 0.1 percentage points lower than the growth projection at the time of the 2023 Budget. These growth rates are not sufficient to achieve our desired levels of development,” said Godongwana.
He noted that the weaker growth outlook for South Africa’s main trading partners, the lower commodity prices, and the risk that the U.S. interest rates will remain higher for longer, “means the global economic environment is less supportive of South Africa’s growth prospects.”
The minister explained that since February, risks to the South African economy — including the decline in commodity prices, increased inflation, and a weaker rand — have materialized, causing significant strain on public finances.
“The main budget deficit has increased by 54.7 billion rands (about 2.94 billion U.S. dollars) compared with the 2023 budget estimates. This reflects lower revenue performance, higher wage bill costs and higher projected debt-service costs,” Godongwana said.
According to him, a sharp decline in corporate income tax, primarily from the mining sector, was a major factor in the revenue shortfall, although personal income tax collection was better than forecast.
“The result of the shortfall is a substantial worsening in the main budget deficit in the current fiscal year. We are now projecting a deficit of 4.9 percent of GDP compared to our previous estimate of 4.0 percent,” he said.
In light of these circumstances, Godongwana stressed the necessity of implementing measures to stabilize public finances and reform the economy to promote higher growth.
The minister believed that the most effective way of funding the government is through an efficient tax administration and by broadening the tax base.
“The South African Revenue Service will continue its focus on enforcing compliance in areas such as debt collection, fraud prevention, curbing illicit trade, voluntary disclosures, and encouraging honest taxpayers to comply voluntarily,” said Godongwana.
“Every additional rand of revenue collected is one rand less which we have to borrow,” he said.
Meanwhile, Godongwana insisted that despite several challenges, the South African economy has shown signs of resilience with real GDP now exceeding pre-COVID-19 pandemic levels.
“In the first half of the year, the economy grew by 0.9 percent despite record levels of load shedding.
The tourism sector grew more than 70 percent in the period, driven by the arrival of more than five million international tourists,” Godongwana said.
“Agriculture expanded by 7.8 percent in the period compared to 2022, while the construction, transport and communications sectors also achieved strong growth. In the words of the president, these are the reasons for hope,” he added.