By Kopano Gumbi

South Africa's Mid-Term Budget Review

JOHANNESBURG (Reuters) – South Africa's mid-term budget review later this month is expected to reflect healthier public finances, though economists caution that it may be premature to relax spending.

Finance Minister Enoch Godongwana is poised to present his first medium-term budget policy statement under South Africa's new unity government on Oct. 30, detailing spending plans for the next three years.

Economists anticipate a better budget outlook due to expected reductions in government spending and lower debt interest payments, bolstered by currency appreciation.

Government efforts have fostered political stability and alleviated severe power cuts, positively influencing sentiment.

The budget deficit for the 2024/25 fiscal year is projected at 3.3% of GDP as of August, as per National Treasury data, an improvement from the previous year’s figures. In February, the forecasted deficit stood at 4.5% of GDP.

Andrew Matheny, Managing Director of Economics Research at Goldman Sachs, expressed confidence that the treasury would meet its targets.

"We don't see much of a risk of overspending and exceeding the spending plans that they laid out on the revenue side," Matheny remarked.

While revenue collection has fallen short of targets, reductions in spending and the transfer of funds from the gold and foreign exchange account have eased borrowing needs, according to economists.

Despite some budgetary flexibility, no new spending initiatives are anticipated, aside from guidance on the government’s infrastructure investment program and potential above-inflation public sector wage hikes for 2025.

President Cyril Ramaphosa vowed in July to revitalize the economy by transforming the country into "a construction site."

"The focus will probably be on job creation, such as the infrastructure development program, pushing funds into areas that stimulate the economy," stated Maarten Ackerman, chief economist at Citadel.

South Africa's GDP growth is projected at 1.1% this year, with the central bank believing this could rise to 3.5% in the medium term with suitable reforms.