Finance Minister Enoch Godongwana. (Photo: Mlungisi Louw/Gallo Images)
Every February South Africans eagerly wait for a financial miracle with a R2 trillion budget in a country that is R5.2 trillion in debt.
It is going to be a long road to economic recovery. Not only is the budget spread too thin, the people entrusted with the funds continuously engage in wasteful and irregular expenditure.
As the finance minister, Enoch Godongwana prepares to unveil South Africa’s 2025-2026 budget, the key question on every one’s mind is whether this will be the year the treasury puts the country on a sustainable growth path.
This is highly unlikely, with economic growth projected at a meagre 1.6% for 2025, coupled with high debt service costs that absorb more than 20% of government revenue.
According to Statistics South Africa, the country’s cash revenue stood at R2.08 trillion from the previous budget collected from various taxes, whereas government expenditure was higher at R2.1 trillion, reflecting a significant budget shortfall.
Public services, which support government administration, took the lion’s share of the budget with R579 billion (25.4%), followed by education at R461 billion (20.2%).
Social protection, including grants for vulnerable citizens, received R346 billion (15.2%), while healthcare services was allocated R265 billion (11.7%). Economic affairs, which include infrastructure and job creation, surprisingly received a modest R231 billion (10.1%).
The rest of the budget was divided between public safety with R201 billion (8.8%), housing with R80 billion (3.5%), defence with R55 billion (2.4%), arts and culture with R45 billion (2.0%) and environmental protection was allocated R15 billion (0.7%).
South Africa desperately needs to escape the stagnant economic growth hovering at 1%. As the smallest economy among the G20, this severely undermines the nation’s negotiation power.
This year’s budget must focus on four key priorities that will set South Africa up for long term success: reducing debt; improving freight and rail; bolstering energy supply; and upskilling the youth to take advantage of new jobs in the age of artificial intelligence.
The minister of finance previously announced an extra R428.5 billion of borrowing at the 2024 budget speech with a 75.3% debt-to-GDP ratio expected to peak in 2026/2027.
How much will the treasury need to borrow this year?
Instead of relying on costly borrowing, the government should prioritise a phased debt-reduction strategy.
A targeted reduction in debt service costs from the current R356 billion a year to below R200 billion within three years would unleash much needed funds for infrastructure projects.
The recent #Paythegrant court judgment ordering the government to pay the Covid-19 social distress relief grants for more than 18.4 million beneficiaries will surely limit how much funds are available to stimulate the economy.
In an economy with limited funds for infrastructure projects, a high dependency on social grants strains public finances and diverts resources away from critical investments in infrastructure that are essential for long-term economic growth.
In his State of the Nation address President Cyril Ramaphosa announced R940 billion in infrastructure funding over the next three years. However, it is the finance minister who will decide how funds are distributed.
In the 2023-24 financial year, Transnet reported a loss of R7.3 billion, a stark contrast to the R5 billion profit recorded in 2019. While it is reasonable for Gondogwana to take the usual “tough love” approach to struggling state-owned entities, which need constant bailouts, this critical sector needs focused intervention.
Allocating additional funds to Transnet’s recovery plan, beyond the R47 billion already provided from the previous budget, is essential to revitalise it.
The 2024 budget decision to increase the limit for renewable energy projects from 15 megawatts to 30 megawatts is a step in the right direction.
But more ambitious targets and incentives are needed to attract private sector investment in light of the landmark Cancel Coal Case judgment which prohibits further coal powered plants.
South Africa’s energy supply remains overly reliant on coal, which provides 70% of the country’s electricity. The budget should include measures to diversify energy supply to renewables.
While important to bring in private companies into the energy mix, the government should explore ways to use critical minerals to integrate renewables to the national grid for energy security.
The R964 million previously reprioritised for the transition to electric vehicles and the 150% tax rebate for electric vehicle manufacturers is a good start, but more funding is needed to support this sector and encourage motorists to go electric.
The 2024 budget allocated an additional R25.7 billion to the education sector and R2 billion for early childhood development. This needs more targeted interventions to address systemic issues in basic education.
Analysts have criticised South Africa’s young people as unemployable. The matric pass rate may have increased to an impressive 87.3%, but the low pass mark at 30% undermines education outcomes.
The decline in maths and science enrolment at the high school level is also alarming. The Financial Mail reported a 43% drop in maths enrolment and 36% in physical science from 2019 to 2024.
This trend affects South Africa’s ability to produce the engineers and scientists needed to build a modern economy.
To combat this decline, the budget must prioritise investments in outer space exploration to spark curiosity, innovation and inspire young minds to explore the mysteries of the universe and push the envelope on astrophysics.
Additionally, increased funding should be allocated to teacher training, particularly in STEM (science, technology, engineering, and mathematics) disciplines, alongside incentives to encourage students to pursue careers in these fields.
For youths not in schooling, the R16.4 billion previously allocated to employment programmes and the R7.4 billion for the Presidential Employment Initiative should be used with ingenuity.
The World Economic Forum’s Future of Jobs report anticipates a drastic change in the types of jobs available by 2030, driven by technological advancements, the green transition, and shifts in demographics.
While 92 million traditional roles may be displaced, 170 million new positions are expected to emerge, particularly in technology-driven fields such as AI specialists, software developers and data scientists.
South Africa needs to keep up with these trends and create skills development and vocational training programmes which produce better results.
The government’s employment initiatives need to be able to take in low-skilled young people and make their labour power globally competitive.
Regarding prudential spending, the previous VAT increases, particularly from wine, beer and spirits; tobacco and the fuel levy need to be complemented with better enforcement measures.
South Africa continuously runs into debt deficit mostly because of irregular, wasteful and unauthorised expenditure, especially at the local municipal level and in state-owned entities. Budget allocations need to go with stringent consequence management mechanisms.
Last, while urban areas may see improvements in living standards and employment opportunities with sustained effort, this progress will remain fragile as long as South Africa operates as a nation of two economies.
The more cities get better the more overcrowded they will be through an upsurge of urban migration.
In the long run, the government must develop a clear investment plan to bridge the urban-rural divide. South Africa needs to dedicate significant funding to modernise rural areas and build a circular economy.
While this year’s budget won’t fix all of the country’s problems, it can set the economy on a stable path toward lasting growth and prosperity.
Nkateko Mabasa is a writer, climate advocate and policy analyst.