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From a macro-economic perspective it contains almost all relevant information (updated economic assumptions as well as the headline fiscal numbers), with the main budget event in February filling in the details.

In view of the tight fiscal situation in which South Africa currently finds itself the focus of this year’s MTBPS will have to be on feasibility and credibility. The stabilisation of the government debt trajectory and the regaining of fiscal space present major challenges that will require tight financial management for years to come.

However, the picture is not only negative. As illustrated by the accompanying table, budget outcomes since after the shock of the recession in 2009 have without exception been better than initially anticipated.


Consolidated budget deficit R’bn (% of GDP)
Fiscal yearOriginal budgetActual outcome or latest estimate
2010/11-168.6 (-6.2)-117.1 (-4.3)
2011/12-154.8 (-5.3)-110.8 (-3.7)
2012/13-153.5 (-4.6)-135.9 (-4.3)
2013/14-163.7 (-4.6)-138.8 (-4.0)
Source: Budget Reviews 2010-2014


In the earlier years this was partly due to expenditure being lower than at first budgeted for in spite of the sharp increase in the public sector wage bill, which is largely the result of the inability of the state to spend, especially when it comes to capital expenditure. In both 2010/11 and 2011/12 actual expenditure was approximately R27 billion lower than originally budgeted for, with the deviation tapering off in later years.

The lower-than-anticipated deficits are also partly because of positive deviations in revenue from budget, in spite of the fall-off in taxes received from the corporate sector and economic growth underperforming forecasts. The cumulative excess revenue compared to the original budgeted amounts for the four fiscal years from 2010/11 to 2013/14 amounts to R 71,6 billion. Tax revenue increased from 24,4% of GDP in 2010/11 to 25,5% in 2013/14, which is nevertheless still lower than in 2008/09 when tax revenue amounted to 26,7% of GDP.

However, the better-than-expected performance has not prevented the continuation of a primary budget deficit and increasing government debt, which is forecast to peak at 57,1% of GDP in net terms in 2016/17, including contingent liabilities, with loan guarantees to Eskom the biggest contributor to the latter.

The future will be much more challenging, as acknowledged in the 2014 Budget Review. The Review lists economic uncertainty and the public sector wage negotiations as risks to the budget outlook, while the 2013 Medium Term Budget Policy Statement also mentioned the debt trajectory and the balance sheets of state-owned enterprises.

With regard to the latter, we already know that Eskom will be allowed to increase its borrowings (with a government guarantee) by a further R50 billion, while it is also set to receive an unspecified equity injection (Eskom has itself indicated that it requires R50 billion in additional equity). It is nevertheless encouraging that the government is envisioning financing the promised equity injection for Eskom from the sale of non-core assets.

However, it is also public knowledge that other state enterprises are currently staking their claims for additional assistance from the state. It has been mooted that SAA in particular needs an equity injection equal to that for Eskom, viz. R50 billion, for it to survive.

As for the public sector wage negotiations, the current agreement that is set to expire in 2015 provides for annual increases of inflation plus 1% and it is unlikely that the current medium-term expenditure framework provides for more than this. The sharp rise in the public sector wage bill in the past five years to close to 40% of consolidated non-interest expenditure means that the impact of a higher increase than budgeted for will be proportionately bigger than in the past – every extra 1% wage increase will push up the budget deficit by 0,12% of GDP.

But economic uncertainty, in particular the outlook for economic growth, is possibly the most important risk to the long-term sustainability of South Africa’s public finances. It is after all not only the short-term, cyclical outlook for the economy that is relevant, but also its long-term potential growth rate.

According to the 2014 Budget Review “the factors driving revenue buoyancy in 2013/14 are not expected to persist, with revenue growth tracking GDP more closely over the medium term”. Revenue projections will therefore be threatened by possible growth disappointments.

To allow for the uncertain growth outlook, the National Treasury will have to refrain from persistently forecasting accelerating economic growth (see the accompanying graph) in spite of actual growth outcomes disappointing repeatedly for the sake of greater realism. Apparently it either did not accept the view that recoveries after major financial crises tend to be slow, long drawn-out affairs, or it thought that the South African economy would outperform the rest of the world. However, it can no longer afford this luxury.

Growth Forecasts at Budget Time

However, there is a more fundamental issue that needs to be addressed in the future management of South Africa’s fiscal affairs, viz. what the state should look like in a global environment of secular stagnation, which is increasingly becoming a possibility that cannot be ignored.

Economic growth in South Africa has been highly correlated with global growth in the past. The only time in the past twenty years (2005-2007) the economy achieved a growth rate of 5%+ per annum for a sustained period was when it was helped along by a global boom, including in commodity markets. This state of affairs is likely to continue as long as South Africa fails to develop its own internal growth dynamic, which in turn depends on its ability to implement the required structural changes that have evaded it for so long.

The current debate on the risk of secular stagnation in the developed world* is therefore extremely important to South Africa’s growth outlook. The idea that emerging economies have delinked from trends in the developed world and can grow independently has also been turned on its head. It is difficult to see how South Africa could have a buoyant economy in a stagnant world, especially when its self-inflicted limitations are brought into consideration

Cognisance therefore needs to be taken of the secular decline in the potential growth rate of the South African economy, which probably now approximates 2,5% per annum. This raises a number of questions regarding the public finances if economic growth were to average, say, 2,5% for the next decade or longer:

  • How large a state will South Africa be able to afford?
  • What should the state’s priorities be under such conditions?
  • In what sequence should the challenges facing South Africa be addressed?
  • What will it imply for the affordability of new policy initiatives?
  • How will greater efficiency in state expenditure be achieved?
  • How will current expenditure be reduced in favour of increased capital expenditure to meet the economy’s extensive infrastructure needs?
  • What are the implications for the government debt trajectory, bearing in mind that low growth will probably be accompanied by relatively high long-term interest rates?
  • How big a primary surplus will be required to keep the pace of debt reduction on its desired course? How is this surplus to be achieved?

To summarise: The MTBPS will have to provide evidence that the South African government is acutely aware of how limited the resources at its disposable are and will remain for the foreseeable future and that it is prepared to face the required trade-offs this implies. In the end economic realities will trump ideological preferences – the problem is that the economy may suffer serious damage before this realisation dawns.

*See for example the recently published Vox e-book, “Secular Stagnation: Facts, Causes and Cures”, available at and the 2014 Geneva Report on the World Economy, “Deleveraging? What Deleveraging?”, available at

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