By Albert Botha, head of Fixed Income at Ashburton Investments‍

The upcoming South African budget speech represents a pivotal moment for the country, offering clarity on the government’s fiscal priorities and implementation strategies. While the President’s State of the Nation Address (SONA) typically outlines the broader philosophical direction, the budget speech serves as a practical blueprint for addressing South Africa’s economic challenges. This year, three critical areas will dominate discussions: state-owned enterprises (SOEs), social and economic reforms, and fiscal sustainability.

The SOE buoy and burden

SOEs remain a cornerstone of South Africa’s economic infrastructure but are frequently also a significant fiscal burden. Eskom, in particular, continues to dominate the conversation due to its central role in electricity generation and distribution. The recent decision by NERSA to approve tariff increases below Eskom’s initial application has raised potential questions about the utility’s financial sustainability and its implications for the national fiscus. The budget speech is expected to provide updates on Eskom’s debt relief programme, which has thus far been contingent on operational reforms and a shift toward private sector participation in power generation.

In transport and logistics, Transnet’s semi-privatisation of ports and rail infrastructure remains a critical focus area. The government must outline progress in attracting private investment and participation, while addressing inefficiencies that have hampered economic growth. Municipalities add another layer of complexity. Many local governments are grappling with unsustainable debt levels, operational inefficiencies and corruption. The restructuring of municipal finances is essential to ensure service delivery and reduce reliance on bailouts from the national budget.

Going for growth, balanced with welfare

South Africa’s pressing need for economic growth underpins much of the anticipated budget discourse. Treasury will likely emphasise initiatives aimed at regulatory reform, infrastructure investment, and easing the cost of doing business to stimulate private-sector-led growth. Simplification of bureaucratic processes and targeted support for small businesses could emerge as key themes.

The future of the Social Relief of Distress (SRD) grant is another critical issue. Initially introduced as a temporary measure during the COVID-19 pandemic, its continuation or evolution into a more permanent form will have significant implications for both social welfare and fiscal sustainability. Additionally, public sector wages remain a contentious topic. Striking a balance between fiscal discipline and labour demands will be vital to avoid exacerbating budgetary pressures.

Achieving a fair and functional fiscal situation

On the revenue side, any adjustments to personal income tax brackets or corporate tax rates will be closely watched. While there is little room for significant tax hikes given South Africa’s already high tax burden, Treasury may explore measures to broaden the tax base or enhance compliance.

The introduction or refinement of fiscal rules — such as expenditure ceilings or debt-to-GDP targets — could provide much-needed clarity on long-term fiscal sustainability. With public debt levels nearing 75% of GDP, anchoring fiscal policy within clear parameters will be essential to reassure both domestic and international investors.

Recent geopolitical developments have added another layer of complexity to South Africa’s fiscal outlook. The strained relationship with the United States could impact foreign aid flows or trade agreements. The budget speech must address how these external uncertainties are being factored into funding strategies.

Conclusion: GNU budget must offer hope in a complex time

The 2025 budget speech comes at a time when South Africa faces both significant challenges and opportunities. On one hand, structural issues like SOE inefficiencies, low growth, and high unemployment persist. On the other hand, progress in areas such as energy reform and improved investor sentiment offers hope for recovery.  It is also the first full budget by the new GNU government and the quest to see whether and where this change in governing dynamics made an impact will be interesting.

Ultimately, this year’s budget must strike a delicate balance between addressing immediate socio-economic needs and laying the groundwork for long-term fiscal sustainability. For investors, businesses, and citizens alike, it will serve as a litmus test for the government’s ability to navigate these complexities effectively while fostering an environment conducive to growth and development.