A little push and everything could fall apart: National Budget Speech 2022 

On Wednesday afternoon, our newly appointed Finance Minister Enoch Godongwana delivered the National Budget for 2022, highlighting the state of the economy, public finances, and fund commitments.

The national treasury is making allocations of R17.5bn for infrastructure, small and medium-sized enterprises are allocated a total support package of R20bn in the form of loan guarantees backed by government and equity-linked guarantees, and R76bn is allocated to job creation programs. National Treasury also announced R5.2bn in tax relief, personal income tax brackets and rebates are adjusted in line with inflation, corporate income tax is reduced by 1% to 27%, excise duties for alcohol and tobacco will increase by 4.5-6.5% and there was even a mention on the possible introduction of a vaping tax and a tax on beer powders.

The Finance Minister announced that the budget deficit will narrow to 5.7% from the 7.8% forecasted at the 2021 MTBPS, and he forecasts a primary budget surplus of R3.2bn in 2023/2024. Real GDP growth is projected at 2.1% for 2022 and is forecasted to average 1.8% over the next three years. In recent years, South Africa has been stuck in a growth trap, struggling to achieve growth above 1.5% per annum.

While the forecasts from the National Treasury signal that some progress is being made in terms of economic reforms, the reaction to the budget speech was muted, and USDZAR weakened slightly by 5cents by close of trading. We believe this is because the reforms are not happening at a fast enough pace to prevent South Africa falling into a debt trap, considering how dire the economic situation has become.


A little push and everything could fall apart. South Africa has uncomfortably high debt service costs – R268bn for the 2021/2022 financial year, increasing to R301bn in 2022/2023, and R335bn in 2023/2024. Total export earnings of R201bn would be required to achieve a relatively modest debt service coverage ratio of 0.75, yet even during the 2021 commodity boom, South Africa’s total exports earnings were only about R156.3bn. Although the finance minister sees a primary surplus of R3.2bn in 2023/2024, we remain perilously close to the edge. We find ourselves wondering if the pace of economic reforms is fast enough to encourage global rating agencies to revise our sovereign debt rating from “junk” status.

Debt Service Coverage Ratio Analysis