SA now sees primary surplus as key fiscal anchor

South Africa has changed its focus to make a primary budget surplus its most critical fiscal anchor, instead of a spending ceiling.

A primary surplus, which excludes interest costs, suggests that the government can extract resources from the economy necessary to service debt and that the policy position regarding spending and debt isn’t characterised by “fiscal looseness,” according to Edgar Sishi, acting head of the National Treasury budget office.

The change forms part of a broader shift in thinking by Treasury officials and follows signals first given in the 2019 medium-term budget, he said in an interview after Finance Minister Tito Mboweni presented the annual budget on Wednesday.

“On the spending side, we’re being much more aggressive than we’ve ever been — not just on the cuts,” he said. “The extent to which we are tangibly shifting resources toward capital projects, that’s a very significant shift in our approach that we are doing very aggressively too and much more explicitly.”

South Africa will now record a primary surplus in 2024-25, a year earlier than projected in October, according to the Budget Review. Of 20 economists in a Bloomberg survey last week, 13 said the Treasury will not be able to achieve its goal of main budget revenue exceeding non-interest spending by 2025-26.

The Treasury is projecting a primary surplus of 0.1% of gross domestic product in four years and targets a positive balance of 0.3% in the long run, Sishi said.

“If we are one decimal point on either side of that, which of course could happen given the inherent risks, that is fine but we consider that broadly where we will end up in 2024-25,” he said.

Achieving the primary surplus on target will allow the government to stabilize the debt ratio at 88.9% of GDP in the following year, the Treasury said.