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South Africa Medium-Term Budget Policy Statement 2023

This year’s medium term budget policy statement (MTBPS) was presented in a domestic environment of low economic growth.
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Picture of Kevin Lings

Kevin Lings

Chief Economist

Picture of Sylvester Kobo

Sylvester Kobo

Deputy Head: Fixed Income

Picture of Tarryn Sankar

Tarryn Sankar

Head of Credit: Fixed Income

Key takeouts 
  • Economic Challenges: The medium-term budget policy statement (MTBPS) highlights the challenges faced by SA, including low economic growth, weak business and consumer confidence, social assistance demands, tax revenue shortfall, infrastructure constraints, and the impact of global events.
  • Economic Forecasts: National Treasury revised down the 2023 GDP forecast to 0.8% but expects growth to improve in the next three years, reaching 1.7% by 2026. However, sustained policy reforms and improved ease of doing business are necessary to achieve higher growth rates.
  • Tax Revenue Collection: The tax revenue collection for the 2023/24 financial year is expected to be R56.8 billion less than the budgeted estimate, with shortfalls in corporate income tax, VAT, and excise duties. Personal income tax collection is performing relatively well.
  • Government Expenditure: Despite spending increases in certain departments, government’s main budget non-interest expenditure will fall by R3.7 billion. Reductions in baselines and other measures will fund the public-service wage increase. There are concerns about achieving these spending cuts and the financial difficulties faced by state-owned enterprises (SOEs).
  • Fiscal Deficit and Government Debt: The tax revenue shortfall and currency weakness contribute to a projected budget deficit of 4.9% of GDP for 2023/24, with gross government debt expected to increase to 74.7% of GDP. Government debt is projected to peak at 77.7% of GDP by 2025/26, with rising debt-service costs. Achieving fiscal discipline and economic growth is crucial to address these challenges.

Listen to our podcasts below

Medium-term budget shows it will be a long road to restore SA to financial stability

In this podcast, STANLIB’s Chief Economist, Kevin Lings, discusses the Medium-Term Budget Policy Statement (MTBPS) delivered under difficult economic conditions. He highlights the key takeaways, including the deterioration in government finances, the significant increase in government debt, and the lack of innovative ideas in the budget. Listen to the podcast for more insights.

Bond market responds positively to MTBPS

Sylvester Kobo, STANLIB Deputy Head of Fixed Income, discusses the Medium-Term Budget Speech from a fixed income perspective. He highlights that the market welcomed government’s commitment to fiscal prudence and the projection that the government debt to GDP ratio will peak at 77.7% by 2026. He also notes that there was relief at news that there will be no increase in weekly auction issuances. Listen to the podcast for more insights.

The MTBPS may change credit outlook but not cause a rating downgrade

Credit rating agencies had expected SA’s budget deficit and debt servicing costs to increase, but the pace of deterioration will be a focus. In this podcast, STANLIB Head of Credit: Fixed Income, Tarryn Sankar, discusses how the deterioration in government finances may prompt rating agencies to change SA’s rating outlook. Listen to the podcast for more insights.



This year’s Medium-Term Budget Policy Statement (MTBPS) was presented in a domestic environment of low economic growth, weak business and consumer confidence, increasing demands for social assistance, a tax revenue shortfall, significant infrastructure constraints that reach beyond the electricity sector, an understanding that many state-owned enterprises (SOEs) need urgent further financial support, and a national election likely before the middle of 2024.


In addition, the global economic environment also remains challenging, given persistent high interest rates in most major economies as well as the impact of the ongoing war between Russia and Ukraine and the recent and dramatic increase in violence between Hamas and Israel.


While Minister of Finance Enoch Godongwana reiterated that the public sector needs to adhere to fiscal discipline, the latest deterioration in government’s key fiscal parameters, as outlined in this year’s MTBPS, is a significant concern. Without a meaningful and sustained improvement in economic growth and job creation, SA’s fiscal position is likely to continue to weaken.

SA’s Key economic forecast

National Treasury revised down its 2023 GDP forecast slightly from 0.9% to 0.8%, but growth estimates for the next three years are a little more encouraging, with the economy expected to grow by 1.4% in 2024, rising to 1.7% by 2026. While these growth estimates appear realistic and achievable, especially if there is a sustained scaling-back or elimination of electricity outages, they highlight that the country has a long way to go before economic growth is back above 3%. It is worth repeating that if government makes a concerted effort to implement the needed policy reforms, including the broader use of private-public partnerships and improving the ease of doing business, economic growth could easily exceed these estimates over the medium term.


After many years of sustained weakness, fixed investment is expected to grow by 6.2% this year, supported by government’s current infrastructural development initiative. This includes allowing the private sector to get more fully involved in providing electricity and other infrastructure critical to the performance of the business sector. Despite this, National Treasury envisages that fixed investment growth will slow significantly in 2024, before stabilising at 3.4% by 2026. This will occur against a backdrop of elevated borrowing costs, challenging domestic business conditions and sluggish global growth.


In terms of inflation, the MTBPS assumes that the average annual rate of increase in consumer prices will moderate towards the midpoint of the inflation target over the next three years, slowly falling from an average of 6% in 2023 to an average of 4.5% in 2026. (SA’s inflation target is currently 3% to 6%, although the Reserve Bank has highlighted the need to achieve a target of 4.5%).

Update on tax revenue collection

For the 2023/24 financial year, government expects to collect R1.73 trillion in tax revenue, which is R56.8 billion less than the estimate presented in the February 2023 National Budget. The tax revenue-to-GDP ratio is expected to decline from 25.1% to 24.7%. The revenue shortfall has occurred despite a broadening of strong tax collection and an improvement in underlying tax collection due to a better-functioning SARS.


According to the MTBPS, the areas of tax that have resulted in the revenue shortfall include corporate income tax, VAT and excise duties. Corporate income tax in particular has been revised significantly lower and is now expected to grow by -12.9% compared to the projected growth of -2.5% made in the February 2023 National Budget. This translates into a shortfall of R35.8 billion, accounting for 63% of the expected overall under-collection this fiscal year. VAT collection is projected to be disappointing, as stronger-than-expected VAT refund payments are offsetting strong import VAT collections. The expected growth in net VAT receipts has been halved, with growth at 5.5%, representing a R25.6 billion shortfall relative to the February 2023 National Budget.


Positively, personal income tax collection is expected to continue its relatively strong performance, coming in ahead of budget and growing by 7.7%. According to National Treasury, this was driven by a recovery in earnings and higher bonus payments, particularly in the financial sector.


Over the medium term, government’s revenue expectations are also concerning, with the outlook for most major tax categories being revised lower. While collections are expected to increase to R1.85 trillion in 2024/25 and R1.98 trillion in 2025/26, these are R121.4 billion below the projections presented in the 2023 National Budget.


Interestingly, the Minister of Finance indicated that in next year’s Budget he will propose tax measures to raise an additional R15 billion in revenue for the 2024/25 fiscal year. This is being done to try to offset the current underperformance of revenue collection. It is unclear whether this will be in the form of additional tax increases or by simply not adjusting tax brackets to allow for the impact of bracket creep. Unfortunately, there is a very real risk that the weakening global environment, coupled with a lack of job creation in SA, could result in further downward revisions to tax revenue estimates over the next couple of years.


It is also abundantly clear that without a sustained increase in economic growth, accompanied by an increase in employment and an improvement in tax morality, the government may struggle to meet its revenue targets. Without higher economic growth, tax collection will continue to dwindle, scuppering government attempts to meet its socio-economic objectives.

Update of government expenditure

According to the MTBPS, government’s main budget non-interest expenditure will fall by R3.7 billion relative to the estimate presented at the time of the National Budget in February 2023. This is despite the fact that R29.4 billion in spending increases are needed to fund the implementation of the 2023/24 public-service wage hike in labour-intensive departments including health, education, police, defence, and correctional services. Other departments are expected to absorb the wage increases within their baselines. According to National Treasury, this will be funded through reductions in baselines and provisional allocations as well as declared unspent funds, projected underspending and contingency reserve drawdowns. Unfortunately, it is not clear which areas of expenditure will be impacted by these reductions, creating uncertainty about whether government will be successful in achieving these spending cuts.


Interestingly, government did not propose any additional allocations to SOEs. This is encouraging, as it shows National Treasury is taking a hardline approach towards SOEs, insisting that they restructure before any funds are allocated. On the other hand, most of these SOEs are in serious financial difficulty and will need government assistance sooner or later. By not making provisions for SOEs now, the minister is simply delaying the inevitable, and pushing the problem down the road.


The Minister of Finance clearly noted that the current social relief of distress (SRD) grant of R350 a month has been extended for one more year until March 2025. The grant currently benefits 7.4 million people and costs taxpayers R33.6 billion. In addition, a provisional allocation of R35.2 billion has been set aside for the SRD grant over the medium term, pending a comprehensive review of the entire social grant system. These payments are over and above the existing social security grants. Currently 18.6 million South Africans receive a social grant, which is around 31% of the population. Importantly, a permanent extension of the Covid-19 SRD grant, or a similar new grant, needs to be matched by a corresponding permanent increase in revenue, decrease in spending or combination of the two.


Lastly, the efficiency of government spending has deteriorated significantly over the past 15 years. The Auditor-General has reported a substantial increase in wasteful and unauthorised expenditure in recent years. This, coupled with high levels of corruption, massively undermine the effectiveness of government services, negatively affecting confidence. It is very encouraging that the Minister of Finance is clearly endeavouring to adhere to fiscal discipline measures, despite the election next year.

SA’s fiscal deficit and government debt

The R56.8 billion tax revenue shortfall and currency weakness has forced the Minister of Finance to present a noticeable deterioration in SA’s key fiscal parameters. National Treasury is now projecting a budget deficit for 2023/24 of 4.9% of GDP, which is up from 4% at the time of the February 2023 National Budget. This means that gross government debt will increase to 74.7% of GDP from 72.2% for 2023/24. Government debt is expected to increase further over the next few years, peaking at 77.7% of GDP by 2025/26, while debt-service costs will rise to 22.1% of main budget revenue by 2025/26. The risks to government finances are, unfortunately, firmly to the downside until the various initiatives to embed fiscal discipline and lift economic growth have been more fully achieved.


This dire situation is highlighted by the fact that the interest cost of government debt estimates for the next two years was revised up by R51.5 billion compared with the 2023 National Budget, mainly reflecting higher interest rates, a larger budget deficit and exchange rate depreciation. This means that in 2025/2026, government’s interest costs alone will represent around 5.4% of GDP, which limits the expenditure choices government can consider over the next few years.

Other policy commitments

Ahead of the MTBPS, it was hoped that the Minister would update and clarify a large number of critical fiscal policy issues. Unfortunately, there are still several areas that the Minister did not adequately address. These include progress on the implementation of National Health Insurance, a longer-term decision on the continuation of the R350 a month special Covid-19 SRD Grant, the restructuring of key SOEs, and policy measures that can be effectively implemented to urgently lift economic growth and job creation.


Encouragingly, the minister did recognise that government has too many departments and work needs to be done to reconfigure the size and structure of the state by consolidating government departments, entities and programmes. However, the timing of this is uncertain. In addition, it was announced that 67 municipalities have applied for debt relief for the debt they owe Eskom. This represents 97% of the total debt owed to Eskom by municipalities at March 2023, showing their commitment to improving their finances.


In 2016, Minister Pravin Gordhan made the point that “the quality of government spending needs to be improved. Too much public spending is regarded as wasteful, too much is ineffectively targeted and too little represents value for money.” Minister Gordhan stressed that “fiscal resources do not match long-term policy aspirations”. Since then, government’s policy aspirations have increased, while the fiscal resources have deteriorated, limiting government’s ability to close the gap between policy intention and enactment.


Positively, however, in this year’s MTBPS, the Minister of Finance focused on allocating money more appropriately and emphasised the importance of infrastructure investment in lifting economic growth, driving employment creation and encouraging innovation. In general, the minister’s speech committed to increasing on-budget infrastructure allocations to remedy the erosion of infrastructure. Over the medium term, government consolidated spending on building new as well as rehabilitating existing infrastructure will increase from R81.1 billion in 2023/24 to R120 billion in 2026/27. This includes roads, bridges, storm-water systems and public buildings. As a result, spending on capital assets will become the fastest-growing item by economic classification, a clear step in the right direction


Overall, despite the latest deterioration in government’s key fiscal parameters, National Treasury remains committed to ensuring that the public sector achieves an improved level of fiscal discipline over the next few years. In addition, the Minister of Finance reiterated the importance of significantly increasing the extent to which the private sector is involved in funding infrastructure and providing technical expertise. This is to be applauded, given the challenging economic, social, and political environment, but will be difficult to achieve without the necessary political backing and support.


The MTBPS was, broadly, in line with market expectations. However, key fiscal parameters have deteriorated significantly since February. Most notably debt-to-GDP is now projected to peak at 77.7%.


Finally, four key concerns remain. Firstly, controlling the increase in social payments and wages over the next few years is going to remain challenging. Secondly, the projected increase in tax collection over the next three years might be difficult to achieve, given that economic growth is not projected by National Treasury to rise above 2%. Thirdly, there is a still a real risk that various SOEs will require additional government support over the coming years, the most concerning of which is Transnet. Lastly, the Minister of Finance is concerned about the sharp rise in debt service costs. These risks, along with the fiscal deterioration will (in general) discourage international investors and increase the risk that credit ratings agencies could put SA’s credit rating on a negative outlook.


Ultimately, there is no substitute for higher economic growth in resolving the country’s fiscal constraints. This can only be achieved through a concerted and co-ordinated effort to lift business and household confidence, improve private sector fixed investment, as well as enhance skills development and productivity. It will require a much greater effort in implementing key policy reforms. Without these reforms, private sector investment is likely to continue to stagnate, exacerbating the already-high level of unemployment and heightening the risk of further social unrest.


STANLIB Economics Team

01 November 2023

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