The treasury says it remains committed to reducing the budget deficit and stabilising the debt-to-GDP ratio to 78.1% by 2024-25.
Tabling his maiden medium-term budget policy statement (MTBPS) to parliament on Thursday, Finance Minister Enoch Godongwana said South Africa’s R4-trillion debt was incurring non-discretionary debt service costs and he highlighted the urgent need to get to grips with it.
The Covid-19 pandemic had led to an unprecedented widening of the budget deficit and a spike in debt stock, the treasury said, adding that overall, public debt had increased seven-hold, from R577-billion in 2007-08 to more than R4-trillion in 2021-22.
Debt service costs were expected to rise from R269.2-billion in 2021-22 to R365.8-billion in 2024-25.
The treasury said over the medium-term expenditure framework period, debt service payments were expected to average R334.5-billion a year. This is 21 cents, on average, of every rand collected in revenue a year that will pay for interest on public debt.
“The consolidated budget deficit is expected to be 7.8% of GDP in 2021-22, gradually lowering to 4.9% in 2024-25,” Godongwana told parliament.
The treasury said it would use part of the higher tax revenues associated with the recent surge in commodity prices to narrow the deficit, while increasing non-interest expenditure to support economic growth, job creation and social protection.
“Taxes paid by the mining sector have been strong, due to the commodity price rally which continued through the first half of 2021,” Godongwana said.
Revenue for 2021-22 is estimated to reach R1.5-trillion, compared with a forecast of R1.4-trillion at the tabling of the main 2021 budget in February. This is an upward revision of R120.3-billion.
“Notably, however, precious metal prices have started to soften. This means the revenue gains from the commodity price rally are expected to be temporary,” warned Godongwana. “Therefore, we should be careful about our spending commitments.”
The finance minister said the additional revenue from the commodity price rally created space for the government to provide additional support for poverty and employment programmes without negatively affecting the fiscal position.