National Treasury expects real GDP growth of 2.1% this year, but that this growth will drop to 1.6% in 2023 and 1.7% in 2024.
Treasury further revised down its economic growth estimate for last year, which was initially at 5.1%, to 4.8%.
Watch/read: Finance minister delivers the Budget 2022 speech
In his budget speech on Wednesday, Finance Minister Enoch Godongwana said the downward revision comes on the back of a changing global environment as well as the country’s own unique challenges, such as the events around the July unrest – which took place in parts of Gauteng and KwaZulu-Natal in 2021 – that saw over 300 people killed and resulted more than R50 billion in damage.
“Commodity prices, which have supported our economic recovery, slowed in the second half of 2021,” Godongwana says.
“Also, violent unrest in July, and restrictions imposed to manage the third wave of Covid-19 further eroded the gains we made in the first half of the year.”
“Industrial action in the manufacturing sector, and the re-emergence of load shedding also slowed the pace of the recovery,” he adds.
Treasury forecasts consumer price index (CPI) inflation to increase to 4.8% for 2022, up from the 2021 estimate of 4.5%. Thereafter, inflation is expected to slightly decrease to 4.4% and then rise to 4.5% for the respective 2023 and 2024 financial years.
In the document, Treasury noted that the country’s economy had begun the process of recovering from the effects of pandemic lockdowns but this recovery weakened in the second half of 2021.
“The economy is expected to reach pre-pandemic levels of GDP this year. Reforms to boost investment, GDP growth and employment are underway. Faster implementation of these reforms will bolster confidence and economic recovery,” National Treasury’s director-general Dondo Mogajane says in the document.
However, according to Treasury, the emergence of new Covid-19 variants in light of a low vaccination rate, rising global inflation and unreliable electricity supply, continue to pose significant risks to this growth.
The budget deficit for 2022/23 is projected at 6% of GDP; this is expected to narrow to 4.8% in 2023/24 and 4.2% in 2024/25. This comes as the state anticipates realising a primary budget surplus by 2023/24 – a year earlier than projected in the medium-term budget.
State debt is expected to stabilise at 75.1% of GDP in the 2024/25 financial year.
Treasury revised down its estimated budget deficit for 2021/22 to 5.7%, from the 7.8% that was estimated in the medium-term budget.
“The fiscal outlook has improved somewhat over the past year, as a result of higher than expected revenue collection,” the Budget Review document noted.
“This revenue will be used to fund pressing policy priorities, and to narrow the deficit and reduce the borrowing requirement.”
Mogajane says despite improvements, the significant risks to the country’s economic and fiscal plans remain.
“The global recovery remains unstable, and inflation is a growing concern. New variants of the coronavirus could lead to new waves of infection,” he says.
“We also face large spending pressures, including the risk of higher than budgeted public service wages, demands for additional funding from financially distressed state-owned companies, and calls for permanent increases in spending that exceed available resources.”