Markets and the credit rating agencies will be watching South Africa’s debt projections as Finance Minister Enoch Godongwana delivers his Medium-Term Budget Policy Statement (MTBPS) today.
Moody’s Investor Service and other rating agencies will be checking to see if South Africa is able to reduce its fiscal deficit and taking measures to cut expenditure.
However, South Africa is struggling on both fronts.
Annabel Bishop, the chief economist at Investec, said, “We now expect the gross loan debt estimate for 2023/24 to be raised to -72.8%/GDP (gross domestic product) and 2024/25’s figure will be revised to -73.5%/GDP, while 2025/26’s projection deteriorates to -74.0%/GDP and 2026/27 to -73.9/GDP.”
The September 30 data showed that expenditure was higher than it was this time last year, at 51% for the first half of 2023/24 versus 47% for the first half of 2022/23, while revenue for the same periods were at 45% versus 46%, leading to concerns.
“South Africa will need to curb expenditure and see higher revenues for the rest of 2023/24 to achieve its fiscal estimates, and markets are wary that in a low growth environment with high, and rising, bond yields this becomes more difficult,“ Bishop said.
The budget deficit for 2023/24 was projected at -4.0% of GDP but Investec now expect -4.5%, with 2024/25 estimated at -3.8% and 2025/26 at -3.2%, likely -4.0% and -3.4% instead, respectively. It expected revenue under-collection of minus R50 billion this year.
Business Unity South Africa (Busa) said yesterday that the deteriorating state of public finances threatened the delivery of public services and put the economic recovery of South Africa at risk.
Cas Coovadia, the CEO of Busa, said South Africa had increasing expenditure and decreasing revenues, which placed the sustainability of its capacity to service its debt in question.
Busa said Godongwana needed to outline clear measures to ensure available funds were spent efficiently and to curtail expenditure, which had to include deep and substantial cuts in spending on non-essential and non-productive programmes, the shelving of unfunded prestige projects and linking future public sector wage increases to inflation.
Busa said the Minister had no choice, but to raise more debt, as a stop-gap measure to fund capital investment in growth-enhancing economic infrastructure.
However, it said that there could be no tax increases as South Africa’s tax-to-GDP ratio is already amongst the highest in the world. Increasing any taxes would burden households and hobble economic growth further.
The Federation of Unions of South Africa said, “We have witnessed over the years how the government’s approach which seeks to rein in spending has failed to produce the desired outcomes, with the consequences felt in public services and the overall economic stability on the country,” it said.
Fedusa said austerity measures must only be implemented in contexts where it cut unnecessary expenditures such as costs for the employment of many cabinets ministers whose volume did not match their dismal performance.
Among other measures, it called on the government to undertake structural reforms to enhance the efficiency and competitiveness of the economy.
“Improving the ease of doing business is at the heart of this, with red tape a hindrance in the running of economic activity. The inevitable result would also be in the attraction of Foreign Direct Investment,” it said.
Meanwhile, Abigail Moyo, spokesperson of the trade union Uasa, said Uasa demands practical solutions in MTBS such as future budget allocations that would enable the relevant departments to address the energy crisis threatening businesses, employment, livelihoods and futures.
“Government departments must be held accountable and justify their current and future budget expenditures according to their work and requirements to tackle service to the people of South Africa. We are tired of the same old fruitless measures, plans, summits and allocation of funds to departments and state-owned enterprises that never positively contribute to economic growth and employment,” she said.