A challenging economic environment and severe fiscal pressure meant that the duty of delivering the 2024 National Budget Speech in a critical election year was guaranteed to be a sweat-inducing task. With debt warning bells already ringing in the background, managing the delicate balancing act between social expenditure and other fiscal responsibilities, and the imperative need for prudent spending cuts to accommodate competing priorities, was no simple or easy feat.
Yet, National Treasury and Minister of Finance Enoch Godongwana once again handled the job with impressive composure. The budget carefully managed the strategic dance between maintaining fiscal responsibility and allocating resources with precision, while addressing pressing national needs and safeguarding essential services. Clever cuts were made to ensure the protection of vital social programmes, and each sector received its due allocation despite limited resources, signalling a commitment to sustaining essential programmes over the medium term without resorting to drastic austerity measures.
For example, the 2024 budget proposes a net reduction to main budget non-interest expenditure of R80.6 billion compared with the 2023 budget. A significant portion of these resources were reallocated to key service delivery departments.
What should also be of comfort to all South Africans is that National Treasury will continue to support the implementation of recommendations from the 2021 spending reviews. These include proposals to close certain programmes and institutions as part of a broader government rationalisation process. There are many programmes that either need to be closed or redirected, allowing funds to be reallocated to other key spending programmes that will further bolster economic growth.
The commitment to further fiscal consolidation is welcome.
Very real risks remain
However, the country is far from being out of the woods. Dwindling revenue offers real cause for concern as a worrying symptom of a sluggish and underperforming economy.
As a result, the budget deficit is estimated to have widened to 4.9% of GDP over the past year. And, even if government is successful in implementing its proposed measures to reduce the deficit over the next year, National Treasury now estimates that the deficit will only improve to 4.5% of GDP. This is a far cry from the 4% figure forecast in the 2023 Budget Speech.
Additionally, the uptick in debt-service costs to R356bn – an increase of R15.7bn from the 2023 Budget Speech projections – raises red flags. Seen together with the estimate that national debt will peak at 75.3% in 2025/2026, the budget has not been able to ameliorate concerns about the sustainability of our fiscal trajectory.
KEY AREA TO WATCH OVER THE COMING YEAR
There are a few areas that will be closely watched and monitored over the coming months and years.
First, while it represents an innovative stopgap measure, the decision to tap into the Gold and Foreign Exchange Contingency Reserve Account, stirs some serious questions about how this will be dealt with in the future. I do not doubt that there were some intense conversations between the National Treasury and the South African Reserve Bank (SARB) regarding this measure. But, while this was a necessary step given the prevailing economic conditions, it is not a long-term solution. The need for a holistic re-evaluation of the country’s fiscal situation remains critical.
As Minister Godongwana emphasised, the reality is that the South African economy is simply not growing fast enough to create wealth for our people and turn the tide on lingering social issues, especially as economic growth continues to lag far beyond population growth. The pie is not growing enough to feed and sustain us all. Urgent steps must be taken to rein in debt and ensure that public spending not only supports those in need but grows the economy.
Next, the mention of the social relief of distress grant was telling. The lack of certainty regarding the future of this grant reflects the fact that broader deliberations within government are ongoing. Moreover, the minister’s emphasis that the grant would be managed within the confines of the current budget envelope points to the fiscal tightrope that government must continue to walk to balance the many competing demands being placed on its limited funds.
The budget also laid bare the systemic challenges plaguing our municipalities - the dire state of local government management systems and crumbling infrastructure demand urgent attention. The injection of funds towards debt relief and municipal revitalisation signals government’s recognition of these pressing issues, but systemic reforms are needed to effect lasting change.
Ultimately, many more difficult choices lie ahead. Government and National Treasury must continue to maintain the equilibrium between fiscal prudence, social spending, and targeted spending that will generate maximum economic impact and returns. We cannot continue to do more of the same. Tough decisions are needed to steer the country away from a dangerous path, and it is time to make every rand count. But, once again, the National Treasury and my former colleagues pulled the deed off with admirable poise.
