Deficit due to drop; more spending cuts due

Mbongeni Mguni | Tuesday January 27, 2026 08:52

The insights are contained in the Budget Strategy Paper released this week. The annual research and estimates document is usually released in September and is a blueprint of the policies, numbers, and priorities underpinning the next budget.

This year, the paper is coming just weeks before the budget statement, due in early February, amidst reports that technocrats have been battling to crunch numbers, especially forecasts, as well as infuse the new administration’s policies into the budget development process.

Figures from the ministry show that rather than the P97.6 billion in total spending approved by Parliament for the 2025 - 2026 financial year, the latest estimates project expenditure of P77.9 billion by March 31 when the financial year wraps up.

Recurrent spending is expected to fall to P64.1 billion, from an approved P72.6 billion, whilst development expenditure is forecast to fall to P13.9 billion from the P23.8 billion approved by legislators last February.

The figures show an 11.7% forecast drop in recurrent spending versus a 42% fall in development expenditure. The documents also show that forecast revenues for the current fiscal year dropped to P68.7 billion from the initial estimate of P75.5 billion, due largely to lower mineral earnings.

Fiscal authorities said the upcoming 2026 - 2027 budget would feature additional austerity measures, particularly those aimed at redirecting spending towards growth in the economy.

“These measures will be complemented by additional reforms in the 2026 - 2027 financial year aimed at moderating recurrent expenditure growth, creating fiscal space for priority development and productivity-enhancing investments,” the Budget Strategy Paper reads.

Cutbacks initiated in the current financial year include centralisation of Government Purchase Orders, a moratorium on internal and external travel, as well as curbs on overtime payments. Travel costs and overtime pay rank amongst the most paramount drivers across government.

Going into the 2026 - 2027 budget, analysts expect that additional measures will include the payroll audit to restrain the civil service wage bill, as well as further efficiencies in project spending and prioritisation.

The audit of the payroll in particular comes as more analysts, including the IMF, press government to restrain the cost of the civil service. According to the Budget Strategy Paper, of the P64.1 billion in forecast recurrent spending this financial year, P36.6 billion is classified under personal emoluments, which include both civil service remunerations as well as grants and subventions to councils and parastatals respectively.

The budget for personal emoluments is more than two and a half times the development budget, the latter being key for opening up economic opportunities, creating jobs, and expanding service delivery.

Technocrats warned that while the deficit had been slashed for the 2025 - 2026 financial year, the additional austerity measures were necessary given the precarious outlook for diamonds, which includes the possibility of a “non-recovery”.

The Finance ministry revealed that diamond inventory levels at the end of December 2025 stood at 12 million carats, “above the allowable 6.5 million carats”. The figures, which are rarely released by producer companies, mean that production levels will remain weak as the existing stockpile needs to pull through the retail end of the diamond pipeline in order to stimulate mining.

“This suggests that, over the short term, production is expected to remain broadly unchanged until the level of inventories is drawn down closer to minimum allowable levels, creating room for additional production,” the Budget Strategy Paper reads. “This will have implications on growth prospects unless the economy can be supported by a much stronger positive performance in the non-mining sector.”

Technocrats said going forward, there was a possibility of non-recovery or partial recovery in diamonds, as the natural stones continue under pressure from lower prices, shifts in consumer preferences, increased competition from lab-grown diamonds and rising production costs locally at the ageing mines.

The Finance ministry said going into the 2026 - 2027 financial year, the country bore an elevated risk of a debt trap unless meaningful restrictions were made on spending. Public debt reached P77 billion in September, and the weak outlook for revenues suggests a greater need for financing.

“Absent structural fiscal reforms and discipline, public debt is expected to maintain an upward trajectory over the medium term, increasing interest payment burdens and constraining fiscal space for priority spending. “This underscores the urgent need for enhanced fiscal discipline, including the implementation of cost-containment measures and strict adherence to the fiscal framework,” the Budget Strategy Paper reads.