Given economic constraints, PwC warns that spending cuts in certain areas are almost inevitable, particularly in programmes where funding allocations have been poorly utilised. Picture: Ayanda Ndamane/Independent Newspaper.
PwC has expressed optimism that finance minister Enoch Godongwana’s Budget Speech next week will resonate positively with the business community.
In their latest predictions, PwC emphasised the need for a robust update on significant economic and structural reforms, notably with regard to the nation’s ongoing energy and logistics sectors, which have been under tremendous pressure.
Since the South African Reserve Bank (SARB) projected an average economic growth of 1.9% per annum from 2025 to 2027, expectations have risen that the National Treasury will echo similar optimistic forecasts for the medium term.
However, PwC highlighted a cautious approach would provide a pragmatic lens through which to view fiscal revenues, stating that “fiscal budgets perennially overestimate economic growth and expected fiscal revenues.”
The firm’s grim outlook for the fiscal budget is particularly notable for the upcoming years, forecasting: 2023/2024: -4.5%; 2024/2025: -5.2%; 2025/2026: -4.8%; 2026/2027: -4.4%; 2027/2028: -4.0%.
Despite these projected shortfalls, PwC remains hopeful that the National Treasury will continue its commitment to narrowing the budget deficit. This effort is crucial for mitigating the rising burden of public debt as a percentage of GDP, especially given unexpected pressures on both revenues and expenditures.
The finance minister is expected to present more favourable deficit forecasts than those outlined by PwC, potentially buoyed by an anticipated rise in economic growth rates.
However, with looming challenges, including funding for expansive HIV programmes suffering from a freeze in USAID spending, the need for prudent fiscal management has become paramount.
Further complicating the fiscal landscape is the need to extend the Social Relief of Distress Grant (SRD), which must be adjusted for inflation in compliance with a court order from the North Gauteng High Court.
Given economic constraints, PwC warns that spending cuts in certain areas are almost inevitable, particularly in programmes where funding allocations have been poorly utilised.
The government’s ability to contain debt within the established fiscal framework is critical; failure to do so may jeopardise South Africa’s credibility with investors, particularly against a backdrop of a sub-investment grade rating.
While the government has long discussed the rationalisation of State-Owned Enterprises (SOEs), there is heightened urgency for the Budget 2025 to address the potential disposal or merger of underperforming entities that pose risks to the national fiscus.
Finally, whilst the budget speech typically involves limited discussion on credit ratings, this could be an opportune moment for Minister Godongwana to reflect upon any advancements made in the areas that ratings agencies scrutinise when evaluating sovereign ratings.
BUSINESS REPORT