The World Bank Group has called on the South African government to enhance the efficiency of public spending to facilitate high-quality and affordable infrastructure services, a move essential for driving inclusive economic growth.

This call comes in light of Finance Minister Enoch Godongwana's recent decision to postpone the tabling of the 2025 Budget Review in Parliament to allow for further consultations over proposed tax increases, including a potential two-percentage-point rise in value-added tax (VAT) due to persistent spending pressures.

In a forthcoming report, titled “Driving Inclusive Growth in South Africa: Quick Wins with Competitive Markets and Efficient Institutions,” the World Bank emphasises that recent political and economic shifts present a pivotal opportunity for policymakers.

The report argues that rather than solely focusing on a robust economic recovery, efforts must also ensure that the benefits of growth are equitably distributed across all societal sectors.

The report also offers pragmatic policy options tailored for South Africa’s unique context to kick off the transformation process and create momentum for reforms, including making cities engines of inclusive growth and dynamizing private sector growth.

According to the now postponed Budget documents, additional spending pressures will have to be funded either through additional revenue increases or expenditure reductions or reprioritisations over the medium term, which may include cutting non-performing programmes.

Between 2011/12 and 2019/20 government spending rose rapidly, mainly driven by bailouts to public entities, transfers to households and a growing public-service wage bill. As a result, spending grew faster than GDP and revenue.

The result was a high debt burden and significant fiscal vulnerability to external shocks, as evidenced by the impact of COVID19 on public finances and the need to implement difficult spending reductions thereafter.

As the public finances stabilise and fiscal targets are met, the government has been exploring the implementation of strong fiscal policy anchors that will help prevent a recurrence of the cycle of high spending, high deficits and high debt.

In the postponed Budget, Godongwana suggested that reforms to the budget process were underway to eliminate inefficiencies, waste and duplication.

This will be supported by spending reviews to ensure programmes are effective, economical and maximise value for money.

During a media briefing last week, Godongwana emphasized that the Budget reaffirmed government’s commitment to raise living standards and improve the country’s long-term economic prospects by prioritising infrastructure investment, continuing to implement economic reforms and increasing spending to address key service delivery priorities.

The 2025 Budget would have included a net increase of R173.3 billion in non-interest expenditure over the next three years, with the main spending additions for infrastructure investments, social protection, and provisional allocations for critical frontline services.

Meanwhile, in its Global Economic Prospects 2025 report published last month, the World Bank said growth edged up in 2024 to an estimated 0.8%, supported by improved electricity supply and easing inflation.

However, it noted that persistent structural constraints—especially transport bottlenecks, inefficient State-Owned Enterprises, and high crime rates—continued to impede economic activity.

“Growth in South Africa is projected to rise to an average of 1.9% a year in 2025-26, about a half-percentage-point upgrade from the June forecast. Improving energy availability and further reforms in the transport sector are expected to support stronger growth,” it said.

“Household consumption is expected to rebound, supported by lower inflation and interest rates, while growth of private investment may gather momentum amid rising business confidence. Fiscal policy is anticipated to remain prudent, aiming to stabilize the public debt-to-GDP ratio by 2026. This requires the containment of pressures to raise expenditures, such as those related to the government wage bill, support for state-owned enterprises, and unfunded healthcare reforms.”

BUSINESS REPORT