Economists have reacted to South Africa’s Finance Minister Enoch Godongwana’s Mid-Term Budget Policy Statement (MTBPS), which was delivered earlier on Wednesday.
EY Africa chief economist Angelika Goliger, said the next few years would be “tough, to say the least”.
“The MTBPS acknowledges this. The growth outlook remains muted, with GDP expected to come in at 1.4% in 2023 and reach 1.8% by 2025 – an average of 1.6% per annum over the MTEF (Medium-Term Expenditure Framework) period. Inflation is expected to reach a high of 6.7% in 2022, moderate to 5.1% in 2023 and reach 4.6% in 2025 – a touch above the SA Reserve Bank’s 4.5% mid-point, signalling that inflationary pressures will remain in the medium-term,” Goliger said.
Goliger added: “The higher tax revenues from elevated commodity prices will wind down, and load shedding will continue to be a ceiling on economic growth, until the pipeline of privately-funded energy projects starts coming through. At the same time, the MTBPS document highlights some positives.
“The budget deficit is expected to narrow to 3.2% of GDP in 2025/26 from 4.9% in 2022/23 and gross debt to GDP is forecast to reach 63% by 2030/31. However, this optimistic picture does not include key fiscal risks, namely the outlook for the public sector wage bill, the plan for Eskom debt, and prospects for the basic income grant – beyond the extension of the Covid-19 social relief of distress grant to March 2024. These have not been explicitly accounted for in the MTEF estimates, over Treasury’s concerns that this would pre-empt the outcome before critical negotiations.”
Clarity on the detail has been pushed forward to the February Budget.
“Proceeding cautiously around the big decisions is the right approach given the current climate of uncertainty. However, the scenario modelling around the impacts of these critical fiscal risks should have been presented in the MTBPS document, to add pragmatism to the outlook,” Goliger said.
Frank Blackmore, lead economist at KPMG, shared his thoughts on the MTBPS.
Listen to his thoughts below:
Johann Els, Old Mutual Investment group chief economist, said that the minister delivered a remarkably market-friendly medium-term budget, but lack of detail on Eskom debt dented its credibility.
“The Medium-Term Budget Policy Statement (MTBPS) saw a better-than-expected market-friendly fiscal statement, detailing a substantially improved fiscal situation and a significant further reduction in fiscal risk.
“However, detail around the restructuring of Eskom’s debt was deferred to the February 2023 Budget, despite Minister Godongwana’s guidance that this detail would be unpacked in the medium-term Budget.
“This could impact Treasury’s – and the Minister’s – credibility going into the next Budget policy, but overall all other aspects of the statement were largely positive with a great mix including deficit reduction, debt ratio stabilisation and extra spending,” Els said.
“It’s disappointing that despite guidance over the last few weeks that there will be detail in the MTBPS regarding how to deal with Eskom’s debt, the detail was delayed until the February 2023 Budget.
“However, the minister did allude to the quantum of the debt relief at between one-third and two-thirds of Eskom’s current debt, as well as saying ‘importantly, the programme will include strict conditions required of Eskom and other stakeholders before and during the debt transfer’, which points to the conditionality that we have been expecting from the programme.”
Els had previously warned that the benefit of increasing commodity prices was set to fade and could not sustain revenue increases indefinitely, but he was comfortable that the MTBPS had factored this in.
“The MTBPS’s upward revenue adjustments were expected and seem realistic, given better recent performance and the better base. Treasury’s assumptions for corporate taxes are very conservative as they expect windfall benefits from commodity prices to fall away. They also expect better SA Revenue Service performance to assist.
He also highlighted that Treasury’s priorities for the fiscal strategy as outlined in the MTBPS were encouraging.
“They aim to achieve fiscal sustainability by narrowing the budget deficit and stabilising debt, as well as to increase spending on policy priorities such as security and infrastructure – thus promoting economic growth – and reduce fiscal and economic risks and build buffers for future shocks. All priorities that send the right message,” he added.
Hayley Parry, a money coach and facilitator at 1Life’s Truth About Money, shared her thoughts on the minister’s speech as well, and how it would impact the consumer in the country:
Andra Nel, purpose manager at KFC’s Add Hope also shared the impact that the MTBPS will have on consumers:
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