By By Kopano Gumbi
JOHANNESBURG (Reuters) – South Africa’s mid-term budget review later this month is expected to show healthier public finances, but economists say it might be too early to loosen the purse strings.
Finance minister Enoch Godongwana is expected to present his first medium-term budget policy statement under South Africa’s new unity government on Oct. 30, setting out spending plans for the next three years.
Economists see potential for an improved budget outlook due to anticipated reductions in government expenditure and lower interest payments on debt, buoyed by currency appreciation.
Sentiment has been boosted by the government’s early success in fostering political stability as well as the end of crippling power cuts.
South Africa’s budget deficit for the 2024/25 fiscal year stood at 3.3% of GDP as of August, according to National Treasury data, lower than the same period last year. In February, the treasury forecast a deficit of 4.5% of GDP for the year.
Andrew Matheny, Managing Director of Economics Research at Goldman Sachs, said that the treasury was likely to meet that target.
“We don’t see much of a risk of overspending and exceeding the spending plans that they laid out on the revenue side,” said Matheny.
Although revenue collection has undershot the target so far, a decrease in expenditure coupled with the transfer of the first tranche of funds from the gold and foreign exchange account has reduced borrowing requirements, economists said.
Despite the wiggle room, there is no expectation the treasury will introduce any new spending initiatives outside of providing funding guidance on the government’s infrastructure investment programme and any above-inflation public sector wage increases for 2025.
President Cyril Ramaphosa pledged in July to revive the economy by turning the country “into a construction site”.
“The focus will probably be on job creation, things like the infrastructure development program, really pushing money into things that can get the economy going,” said Maarten Ackerman, chief economist at local financial firm, Citadel,
South Africa’s GDP growth is seen at 1.1% this year, according to the central bank. The bank believes growth could accelerate to 3.5% in the medium term with appropriate reforms.