South Africa on track for first primary budget surplus in 15 years

New data suggests that South Africa may have achieved a primary budget surplus, marking the first time in 15 years that its revenue surpasses non-interest expenditure.

This development is seen as a crucial step towards curbing the country's escalating debt, which has raised concerns in recent years, Bloomberg reports.

According to its preliminary figures, South Africa's primary surplus stood at 0.4% of gross domestic product for the year ending in March 2024, in line with the forecast provided by the National Treasury in February.

Additionally, the initial budget deficit for 2023-24 is reported to be 4.6% of GDP, slightly better than the earlier estimate of 4.7%.

The positive economic data is significant for the ruling ANC party, especially amid fears of losing its majority in the upcoming national elections on May 29 due to perceived economic mismanagement.

Investors, who have been apprehensive about South Africa's mounting debt, are likely to view this development favourably.

Debt service costs currently consume a significant portion of revenue, surpassing allocations for essential sectors like education, social protection, and health.

The achievement of a primary surplus offers a glimmer of hope for debt stabilisation, according to Yvonne Mhango, an economist at Bloomberg Africa.

However, she stressed the importance of maintaining this trend over the coming years for sustainable progress.

To address the debt issue, the Treasury plans to stabilise debt at 75.3% of GDP by 2025-26 through measures such as utilizing the nation's Gold and Foreign Exchange Contingency Reserve Account and implementing a new fiscal anchor.

Several factors contributed to the positive economic outlook, including a significant surplus in February's monthly budget and better-than-expected tax revenues.

Final figures on these metrics will be disclosed in the medium-term budget policy statement scheduled for October. Additionally, the upcoming GDP data for the first quarter, set to be announced by the statistics agency on June 4, will influence future assessments.

The Treasury has refrained from sharing its GDP projection for the first quarter but remains optimistic, with its February forecast exceeding the estimate provided by the International Monetary Fund.