By Lehlohonolo Lehana.
Finance Minister Enoch Godongwana indicated that South Africa’s government debt is set to stabilize in 2025/26 at around 77.9% of GDP, marking the first time since the 2008 global financial crisis that the debt-to-GDP ratio is not projected to keep rising
Godongwana delivered his 2025 mid-term budget speech on Wednesday (12 November).
He said Treasury’s fiscal strategy aims to anchor fiscal policy by stabilising debt and growing the primary budget surplus; mobilise and direct more resources towards infrastructure investments; and improving efficiency and effectiveness of spending.
“I am pleased to inform the house and country that we are on track to restore fiscal sustainability. Government debt will stabilise in 2025/26, at 77.9% of GDP. This is the first time since the 2008 financial crisis that public debt will not grow as a percentage of GDP,” Godongwana said.”
Since 2008, spending has consistently exceeded revenue, driving up debt and debt-service costs.These costs crowded-out spending on critical services and exerted pressure on lending rates across the economy.
Godongwana has outlined several initiatives being undertaken to finally begin shifting composition of government spending from consumption to capital investment, including plans for a R15-billion infrastructure bond in the coming months.
The MTBPS reaffirms that capital payments will be the fastest-growing area of spending over the coming three years, with plans also advancing to accelerate private sector participation in the financing and delivery of infrastructure.
” [W]e are shifting the composition of spending from consumption to investment. Capital payments are the fastest growing expenditure item at 7.5% over the medium-term, “Godongwana said.
Gross fixed-capital formation has been in decline as a share of GDP since the 2008 global financial crisis, and currently stands at about 14%, which is below pre-Covid levels and less than half of the 30% targeted by the National Development Plan 2030.
Government’s focus on growth-enhancing infratructure reforms aims to reverse this systemic underperformance, spurring a virtuous cycle of investment, growth and job creation.
“Providing policy certainty and easing supply-side constraints will boost investor confidence and unlock private investment, which accounts for about 70% of total gross fixed-capital formation,” the MTBPS states.
The National Treasury is preparing a minimum R15-billion infrastructure bond issuance for Budget Facility for Infrastructure (BFI) special window, having recently reconfigured the BFI to accommodate four yearly bid windows instead of one.
“The bond forms part of our efforts to introduce dedicated financing instruments that can mobilise cheaper financing to support our infrastructure agenda,” Godongwana added.
The BFI’s bid windows enable public institutions, including national departments, provinces, municipalities and State-owned enterprises, to request funding for part of the cost of a project, as a basis to attract additional private funding.
In the first two quarters since the reconfiguration, 28 submissions with a total capital cost exceeding R379.1-billion were received and approvals were made for projects in the science, water and sanitation, transport and logistics sectors, including two major rail rehabilitation projects for the North Corridor and the Iron Ore Corridor.
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