South Africa records first budget surplus in 15 years

South Africa records first budget surplus in 15 years
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South Africa records first budget surplus in 15 years

For the first time in 15 years, South Africa has achieved a primary budget surplus by adopting a strict approach to funding state-owned companies that have historically strained government finances.

  • South Africa achieved a primary budget surplus for the first time in 15 years
  • The primary surplus was 31.6 billion rand or 0.4% of GDP for the year ending in March 2024
  • Investors may be more inclined to consider South African assets due to the positive economic developments

Africa’s most industrialized economy recorded a primary surplus—where revenue exceeds non-interest expenditure—of 31.6 billion rand ($1.7 billion) or 0.4% of gross domestic product for the year ending in March 2024, Bloomberg reported. This result aligns with the National Treasury’s forecast from February.

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What the Central Bank said:

“The decline in non‐interest expenditure was driven by lower voted expenditure, largely owing to the sharp decline in payments for financial assets, reflecting government’s limited recapitalization of state-owned companies,

According to data released in the South African Reserve Bank’s Quarterly Bulletin, Finance Minister Enoch Godongwana maintained a strict policy on funding debt-ridden state companies such as Transnet SOC Ltd., the ports and railways operator., providing relief only if they meet strict conditions including implementing recovery plans and selling non-core assets. In the February budget, Godongwana offered no new bailouts to state firms.

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Additionally, the minister reduced the debt-relief funds for state power utility Eskom Holdings SOC Ltd. after it failed to meet the conditions attached to a 254 billion-rand package granted last year, which the company had been accessing in tranches.

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The data will likely be well-received by investors who have previously avoided South African assets due to the country’s high debt levels. South Africa’s debt-to-GDP ratio stands at 74.1%, significantly higher than the emerging-market average of 58.9%, and its interest-to-GDP ratio is also notably high.

Currently, one-fifth of South African revenue is allocated to debt-service costs, which consume a larger portion of the budget than basic education, social protection, or health, according to the Treasury’s February budget.

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To address this, the Treasury plans to draw down on the nation’s Gold and Foreign Exchange Contingency Reserve Account and introduce a new binding fiscal anchor, aiming to moderate government debt. The Treasury anticipates the debt will stabilize at 75.3% of GDP by 2025-26.

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