Finance Minister Enoch Gpdongwana has reiterated that South Africa’s main challenge in resolving its problems was weak economic growth, not the enormous government debt burden, which is forecast to breach R6 trillion in 2025/26.
Speaking at a breakfast event with RMB yesterday to ruminate about the 2024 Medium-Term Budget Policy Statement (MTBPS), Godongwana said the country had a growth problem.
Presenting the MTBPS on Wednesday, Godongwana has said South Africa’s government debt was unsustainable and the National Treasury was anticipating that government debt will reach more than R6.05 trillion, or 75.5% of gross domestic product (GDP) in 2025/26.
“South Africa has a growth problem. If you've got a growing economy, it will solve the problem of unemployment. It will solve the problem of poverty. So South Africa has got a growth problem. If you've got a growing economy, you'll solve the problem of debt,” Godongwana said.
“The problem has nothing about debt. Debt is not about its size, it's the capacity of the economy to service that debt. If you are trying to say South Africa must sit at 77%, then most of the other countries, particularly in the developing world, are more than 100% debt to GDP and nobody worries about that. Why? Because those economies have the capacity to service the debt.
“So, what was my message? That's what I'm trying to say, which people are missing. My message [in the MTBPS] was that South Africa has got a growth problem. We've got to refocus on growth.
“We've got a growth problem for more than a decade we've been struggling with. So if we want to move South Africa to think differently, then to solve most of the problems we're talking about, we've got to grow the economy.”
The National Treasury has revised downwards South Africa’s growth forecast for 2024 to 1.1% from 1.3% previously, while growth is expected to average 1.8% in 2025 and 2026.
Treasury said economic growth this year was weighed down by stop-start economic growth and stubborn inflation in the first half of the year, though activity has since strengthened in response to the suspension of power cuts, with improved confidence following the formation of the Government of National Unity (GNU), better than-expected inflation outcomes in recent months and reduced borrowing costs.
Godongwana said the government alone cannot be responsible for growing the economy, and called on the private sector to come on board in boosting growth and contribute to job creation.
He said the government will work on creating a conducive environment through macroeconomic stability, building State capacity, implementing structural reforms, and increasing public infrastructure investment.
“All of these things are not going to be done by the government alone. No. If you look at the 15 million people employed in South Africa, the government also employs about 1.2m. The rest is the private sector,” Godongwana said.
“So what can the government contribute to this growth challenge? That's my message. That's our contribution. Other people will do other things.
“But that macroeconomic stability presupposes that while we are growing this economy, we've got to contain our debt service cost. They consume more than any other item of expenditure at the moment at R388 billion. That composition of expenditure, without containing the debt service cost, that shifting the composition of expenditure is not going to be an easy task. You can't deal with that because the economy is not growing.”
Citadel’s chief economist Maarten Ackerman yesterday described the budget as “fair and transparent” but noted its implications underscored the significant work required to stabilise economic growth and address rising debt.
Ackerman said he believed that economic growth reform was “contingent on structural reforms”.
“The big elephant in the room is still the public sector wage bill, and today we were told we rank third highest in the world at about 14% of GDP, whereas the global average is only 10%,” Ackerman said.
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