Prof. Haroon Bhorat, Chair: Sygnia Investment Committee
The recent Budget from South Africa’s National Treasury has been praised for its macroeconomic conservatism, but vulnerabilities in outer-year deficits tied to unresolved political-economic concerns are clear.
While the recent Budget from National Treasury was received with much relief by the markets for its adherence to macro conservatism, the outer-year deficits are worryingly dependent on political economy concerns in two areas. In the case of the social relief of distress grant (SRD) of R370 per month, government has not budgeted for it to increase beyond March 2025, though history and political dynamics in South Africa suggest they should have.
Secondly, and perhaps more importantly, the public sector wage bill adjustment pencilled in for the two outer years of the Medium-Term Expenditure Framework is an annual adjustment of 4.5% per year. The largest public sector unions in South Africa – Nehawu, Popcru, Denisa and Sapu – have not agreed to these adjustments, however, and it is hard to imagine that the wage bill will not exceed the 4.5% adjustment.
The chart below illustrates the implications for the national budget deficit, all else being equal, should public sector wages be adjusted by a more likely 7.5% per annum and the SRD continue into 2026/27. In this scenario, national expenditure estimates are close to R950bn by 2026/27 on these two items. In turn, the deficit-to-GDP ratio remains elevated throughout the period and does not drop below 4.5%, peaking at 4.8% in the 2025/26 financial year.
Ultimately, reneging on the public sector wage bill commitment and SRD would cause South Africa’s deficit-to-GDP ratio to rise from the assumed 3.3% to 4.6% by fiscal year 2026/27. This is a deficit target to keep an eye on!
ENDS
