Following a weaker‐than‐expected third quarter, economic growth for 2021 has been revised down to 4.8 percent, compared with 5.1 percent estimated at the time of the 2021 Medium Term Budget Policy Statement (MTBPS). The medium‐term growth outlook has improved moderately. Treasury projects real economic growth of 2.1 percent in 2022, the year in which the economy is expected to return to pre‐pandemic production levels. GDP growth is expected to average 1.8 percent over the next three years.

Significant risks to the economic outlook include new COVID‐19 variants leading to new waves of infection, continued interruptions in power supply, rising inflation and fiscal risks. Faster‐than‐expected global interest rate increases would also have negative consequences for the economy. The 2022 Budget Review supports the implementation of a wide range of reforms to bolster economic growth and employment over the medium and long term.

Global uncertainties and an uneven domestic recovery will weigh on the economic outlook over the medium term. While the outlook for 2022 has been revised upward, persistent structural constraints continue to inhibit the pace of the recovery from COVID‐19 and longer‐term growth. Accelerated implementation of reforms is necessary to create jobs and encourage investment over the medium term.

Staying the course will enable government to bring fiscal consolidation to a close. In 2024/25, main budget non-interest expenditure will grow slightly above inflation. The consolidated deficit is expected to decline from 5.7 percent of GDP in 2021/22 to 4.2 percent of GDP in 2024/25. Gross loan debt is projected to stabilise at 75.1 percent of GDP in 2024/25.

Significant risks to the fiscal outlook include the introduction of unfunded spending programmes, another economic slowdown, higher borrowing costs, the contingent liabilities of state‐owned companies and higher‐than‐budgeted public‐service wage settlements.

Managing the Public‐Service Wage Bill
Compensation spending for national and provincial government grew by 7.3 percent on average for the period 2014/15 to 2019/20, compared with 6.8 percent average growth in non‐interest expenditure. This trend crowded out other spending items like goods and services, with a concomitant impact on service delivery. The decision to not implement the final leg of the 2018 wage agreement and other measures to reduce average wage costs have improved the wage trajectory. Medium‐term wage bill growth is projected to be much lower than the original trend. This will contribute to closing the gap between revenue and expenditure, improving the composition of expenditure.

A new round of collective bargaining will begin in March 2022. The National Treasury is working with the Department of Public Service and Administration to keep the compensation baseline within affordable limits. As indicated in the 2020 Budget, compensation baselines will grow at the rate of inflation from 2024/25. Should collectively bargaining result in salary adjustments that exceed compensation ceilings, reductions in headcount will be required.

Main budget non‐interest spending increases by a net R282.3 billion over the medium‐term expenditure framework (MTEF) period compared to the 2021 Budget. This increase is supported by higher‐than‐anticipated revenue collections and does not jeopardise the path to deficit reduction. Total consolidated government spending will amount to R6.62 trillion over the next three years. Additional allocations of R110.8 billion in 2022/23, R60 billion in 2023/24 and R56.6 billion in 2024/25 are made for several priorities that could not be funded through reprioritisation. These include the special COVID‐19 social relief of distress grant, the continuation of bursaries for students benefiting from the National Student Financial Aid Scheme, and the presidential employment initiative. Debt‐service costs will average R333.4 billion per year.

The learning and culture function receives the largest share (24.3 percent) of the total consolidated budget over the next three years. The bulk of this allocation is for basic education. General public services, which mainly supports administrative and policy departments in the centre of government, will receive the smallest share (3.8 percent) of the total. Spending across functions supports the implementation of new and existing policy
priorities. Reprioritisation and reallocation of funds within departments and functions, as well as across functions, remain the key instruments for financing these priorities.