Is South Africa heading for a ‘fiscal crisis’?


UPDATED – 12 October 2023
This Policy Brief has been updated with Treasury data from August 2023 that was not available when the previous version was published. The version attached here now reflects that new data.


South Africa’s National Treasury has sounded an alarm over a potential budget shortfall and instructed departments and entities across the state to dramatically and immediately cut expenditure. This Policy Brief analyses the reported budget shortfall and proposes ways it can be managed in a manner that improves economic performance and both safeguards and expands vital service provision over the short and long run.

It is important to distinguish between the potential of an immediate ‘fiscal crisis’ and what this year’s revenue and expenditure trends signal for the medium-term sustainability of the fiscal trajectory. With respect to the immediate and acute reported ‘fiscal crisis’ it should be stated unequivocally that this is being exaggerated for political purposes. As will be shown below, the budget mismatch (on both revenue and expenditure ends) is within historical norms, considerably below recent revenue windfalls, and well within government’s ability to close without resorting to chaotic budget cuts. The numerous avenues for closing this budget mismatch are unpacked below. We will also show how the expenditure overruns have been caused by (reckless, and seemingly deliberate) poor planning on the part of the National Treasury. Closing the revenue gap would be far preferable to rushed expenditure cuts whose medium-term impact is likely to be destructive and self-defeating. 

At the same time, the budget mismatches currently playing out are a warning. A situation of repeated revenue shortfalls and expenditure overruns would be unsustainable. In the medium term we could run out of road to meet these through increased revenue. The only credible way out of this quagmire is a viable path for economic expansion. The debt-to-GDP ratio – the most common measure of debt levels – is determined by both debt and GDP levels. If GDP rises faster than debt, the debt-to-GDP ratio falls. The volume of economic activity is also a key determinant of tax receipts. Appropriate fiscal management must be a crucial plank of any credible growth strategy.