South Africa's Budget 3.0: Tackling the R75-Billion Shortfall

Strategic Insights -

South Africa is facing a severe fiscal crisis, with a R75-billion shortfall forecast over the next three years. Finance Minister Enoch Godongwana will need to make a third attempt to table the Budget on Wednesday, 21 May 2025, to plug the gap. With few options left, economists believe that tax hikes, spending cuts, or increased borrowing are the only way forward. The fragile South African economy has limited scope for further fiscal tightening, leaving the government with a difficult decision to make.

Key Takeaways:

  • The R75-billion shortfall is forecast over the next three years, with tax hikes, spending cuts, or increased borrowing being the only options left for the government to plug the gap.
  • Economists believe that there is virtually no more scope for hikes to income or corporate tax, with the fuel tax levy being a possible target for increases.
  • The Treasury's forecast for economic growth of 1.9% this year is likely to be shaved, with the IMF reducing its 2025 forecast for South Africa to 1.0% from 1.5%.
  • The IMF also pared down its global growth forecast for this year to 2.8% from 3.0%, largely due to US President Donald Trump's tariffs and trade wars.
  • Ratings agencies such as S&P forecast that South Africa's gross debt to GDP ratio will reach 80% this year, with the Treasury's latest projection being 76.2% for 2025/26.
  • Oxford Economics Africa senior economist Jee-A van der Linde believes that the Treasury may increase borrowing to meet the debt-to-GDP ratio forecast, which is already being priced in by ratings agencies.
  • Investec Treasury economist Tertia Jacobs suggests that a spending review in the October 2025 Medium Term Budget Policy Statement could tackle the R75-billion shortfall, with a net increase in spending of R30.0-billion compared to R61.6-billion in Budget 2.0 in FY25/26.
  • The National Treasury will have a hard time finding sustainable revenue sources in the current economic environment, making spending cuts a necessary evil.

Statistics:

  • R75-billion: The forecast shortfall over the next three years.
  • 1.9%: The Treasury's forecast for economic growth this year, which is likely to be shaved.
  • 1.0%: The IMF's 2025 forecast for South Africa's economic growth.
  • 2.8%: The IMF's global growth forecast for this year.
  • 80%: Ratings agencies' forecast for South Africa's gross debt to GDP ratio this year.
  • 76.2%: The Treasury's latest projection for the debt-to-GDP ratio for 2025/26.
  • R30.0-billion: The net increase in spending suggested by Investec Treasury economist Tertia Jacobs.
  • R61.6-billion: The spending increase in Budget 2.0 in FY25/26.
  • R150-billion: The amount to be drawn down from the Reserve Bank's Gold and Foreign Exchange Contingency Reserve Account over the next three years.

Sources:

  • Daily Maverick
  • Oxford Economics Africa
  • Investec Treasury
  • IMF
  • S&P
  • National Treasury
  • Reserve Bank of South Africa
  • Institute of Economic Affairs