A Budget of Balancing Acts

Finance Minister Enoch Godongwana.

The South African Finance Minister Enoch Godongwana stood at the podium, delivering the third reiteration of the 2025 National Budget Speech on Wednesday, May 21, 2025. This milestone marked another attempt to navigate South Africa's complex economic landscape, addressing pressing issues such as sluggish growth, substantial debt servicing costs, and social support.

South Africa's economy has been experiencing sluggish growth, averaging below 2% annually over the past decade. The finance minister projected a modest growth rate of 1.4% for this year, lower than the 1.8% predicted in March. To put this into perspective, the country's GDP growth is forecast to reach 1.9% in 2025 before slightly declining to 1.75% in 2026 and returning to 1.9% in 2027.

The proposed VAT hike has been scrapped, providing relief to consumers and retailers. Instead, fuel taxes will be adjusted for inflation to offset lost revenue.

Fuel taxes will increase by 16 cents per liter for petrol and 15 cents per liter for diesel, effective June 4, 2025.

The Social Relief of Distress (SRD) grant will be extended for another year, supporting over 10 million people, with a total allocation of R35.2 billion.

South Africa's debt burden is projected to peak at 76.2% of GDP in 2025/26, highlighting ongoing fiscal pressure.

The government has reaffirmed its commitment to providing relief to vulnerable populations through enhanced social grant allocations. The updated increases for various social grants are as follows:

- Old Age Grant: R2,315, up from R2,185

- War Veterans Grant: R2,335, up from R2,205

- Disability Grant: R2,315, up from R2,185

- Child Support Grant: R560, up from R530

Despite these efforts, challenges persist. The country's debt-to-GDP ratio is expected to rise to 77.2% from 75.9% in FY25/26, mainly due to lower nominal GDP growth. Economic experts remain skeptical about the country's ability to break out of its low-growth trap without major structural reforms in energy, labour markets, and regulatory policies.