South Africa’s upcoming national budget will face intense scrutiny, with analysts focusing on key areas such as the debt-to-GDP ratio, government spending, and potential risks that could lead to further fiscal slippage, says Waldo Marcus, Director at TPN from MRI Software.
In the medium-term budget policy statement (MTBPS) of October 2024, tax collections for the 2024/2025 financial year fell short of expectations.
However, the latest data indicates that tax revenue has grown by 5.3% in the current financial year, while government spending has only increased by 4%. This raises the question: Could the National Treasury have achieved its elusive target of a primary budget surplus?
Despite these improvements, South Africa’s growing debt remains a pressing concern. Debt-to-GDP is projected to peak at 75.5% in 2025/2026, well above the 60% threshold considered the maximum sustainable debt ratio for emerging markets like South Africa.
“The hope is that enough has been done to stabilise the government’s debt ratios and that any new challenges will only require political resolve for structural change without fiscal fallout or demands,” said Marcus.
“The inflation rate is better than expected, and the implementation of the two-pot retirement system enabled around R43 billion in retirement savings to be released into the economy, also providing a boost to SRS.”
The economy, however, still faces a number of risks, he said. GDP growth is lower than expected, keeping the State’s finances in a precarious position. Government has overspent for years, relying on borrowings to keep its lights on, while the tax base remains anaemic.
“This is unsustainable, especially as the cost of borrowing has increased and rating agencies consider more variables.”
In early February 2025, the US administration issued an executive order reducing support to South Africa, potentially jeopardising the renewal of the African Growth and Opportunities Act (AGOA), which grants South Africa approximately $4 billion in preferential exports.
The move also freezes US-backed credit guarantees and development financing, potentially leading to higher borrowing costs for the country.
If credit rating agencies downgrade South Africa’s debt outlook, borrowing costs could rise even further.
Moody’s has cautioned that escalating political tensions between the US and South Africa could stifle economic growth, particularly if the situation leads to trade restrictions or dampens foreign investor sentiment.
During his annual State of the Nation Address (SONA), Marcus noted that president Ramaphosa committed government to focus on underperforming municipalities, including the establishment of professionally managed utilities for water and electricity provision to ringfence revenue to ensure appropriate infrastructure investment and the efficient delivery of local services.
This commitment must be reflected in the budget with an appropriate allocation, he said.
Property values tend to decline in poorly managed municipalities. Conversely, well-run municipalities with maintained public infrastructure and safe public spaces remain attractive to property investors, tenants, and businesses.
Government is aware of municipalities’ need to improve their ability to collect the rates and taxes owed to them. Eskom has warned that unless municipalities pay what is owed, the power utility will be forced to approach National Treasury for another bailout.
“Ultimately, South Africans will have to fund the deteriorating state of provincial and municipal finances,” said Marcus. Municipal debt to Eskom grew from R28 billion in March 2020 to R107 billion by mid-December 2024.
In addition to the usual increases in sin taxes, analysts will also be watching for other tax increases to bolster South Africa’s fiscal position.
The property sector is impacted by numerous trends including confidence levels, employment rates, interest rates and inflation rates, among others.
A stable employment rate ensures that property vacancy rates are kept low while lower interest rates after a prolonged period of high interest rates may see some tenants shift to property ownership.
In 2024, average residential rental vacancies were the lowest since the TPN Vacancy Survey was first published in 2016.
“It will take time for the three consecutive interest rate cuts of 25 basis points each in recent months to filter through to consumers. Once they do, we expect to see an increase in residential property sales, particularly in well-run municipalities,” said Marcus.
The property sector has been challenged in recent years by escalating municipal costs, failing public infrastructure, loadshedding, the cost of capital and high interest rates, putting increased pressure on property developers and investors to enhance operational efficiencies in order to sustain returns.
“Given government’s limited fiscal space, the property sector will watch keenly how finance minister Enoch Godongwana balances numerous competing priorities in this year’s budget announcement to improve investment perception.”
