Casey Delport
ON NOVEMBER 11, Finance Minister Enoch Godongwana is due to table his maiden Medium-Term Budget Policy Statement (MTBPS) amid the country’s increasingly complex fiscal environment.
The MTBPS serves several important roles including setting out the National Treasury’s policy framework for the February 2022 Budget, updating the Treasury’s economic forecasts for South Africa, and adjusting the budgets of government departments.
This year’s MTBPS will centre on stabilising the economy, given the continued negative impact of the Covid-19 pandemic and the July social unrest, in an attempt to bring the country’s debt down to sustainable levels.
Thus, the minister will have to carefully navigate mounting pressure to raise spending on items such as social grants and salaries in the face of a temporary revenue boom that has, in the short-term at least, helped allay the government’s fiscal woes.
Government revenues are forecast to outperform the February Budget’s targets by R169 billion this year, driven by the combination of a better-than-expected recovery in economic activity and a commodity price boom which, in turn, has boosted corporate income tax payments and mining royalties.
However, expenditures will probably overshoot their original February Budget targets this year. The economic support package announced by President Cyril Ramaphosa in the wake of July’s social unrest has amounted to R34 billion of additional expenditure, including the reintroduction of the Social Relief of Distress (SRD) grant.
In addition, the latest public sector wage deal will cost the state an extra R20bn that was not budgeted for, although the government has said that would be funded by a reprioritisation of existing funds.
Consequently, the budget deficit for this year is forecast at R350bn versus the R483bn target in the February 2021 Budget.
Furthermore, given the recent restatement of the national accounts, which lifted the estimated size of nominal gross domestic product (GDP) by 11 percent, this translates into a deficit of 5.6 percent of GDP versus the nine percent target that the Treasury published in February.
Unfortunately, lately, the government appears to be acceding to spending commitments that risk becoming permanent, even as commodity prices have softened.
Looking ahead, uncertainty about the government’s stance on public sector pay remains, as well as how it will fund the extension of the public employment programme, and whether it will extend the SRD grant or even possibly expand it into a full basic income grant.
The MTBPS will probably allude to thee issues even if it may not fully answer them. Nonetheless, amid all the factors, and in anticipation of the upcoming tabling of the MTBPS, the points highlighted below form part of our wish list, or set of ideals, for this year’s MTBPS:
– Taking action against those implicated in wrongdoing at the Zondo Commission.
– No budget reduction for the National Prosecuting Authority or, better yet, allocating more money to the NPA, and the Special Investigating Unit (SIU) to fight rampant corruption.
– A demonstration of the government’s intention to follow a path of fiscal consolidation with difficult actions rather than simply words.
– A credible plan that brings debt accumulation under control and where debt levels begin to come down rather than escalating at a slower pace.
– A demonstration of additional measures to improve the ease of doing business in South Africa.
– Further details surrounding potential liabilities of the Road Accident Fund, as well as other smaller state-owned enterprises, which are in distress, including Denel, the Land and Agricultural Development Bank of SA and the SA National Roads Agency.
– Detailed plans to address the financial distress of municipalities.
– The presentation of feasible growth targets that reflect the economic reality of the country.
– More details surrounding the previously announced reprioritisation within the existing expenditure envelope to fund new spending commitments.
– Clarity surrounding the future of the SRD grant, that is will it be expanded into a formal basic income grant?
– Whether any of the abovementioned wish list items will come to fruition remains to be seen. There are also plenty of other fiscal-related issues that need to be addressed and this list is by no means exhaustive.
Interestingly, some of the abovementioned points are unchanged from the wish list we released prior to the February, indicative of the many uncertainties and unanswered questions present in the fiscal space.
The extent to which new spending absorbs any fiscal windfall is crucial, as it would reflect the true commitment of the government to fiscal consolidation.
Overall, SA’s fiscal situation remains precarious, and the debt service burden is unsustainable, so striking the right balance between providing relief and improving the fiscal prognosis of the country continues to be imperative.
Casey Delport is an investment analyst at Anchor Capital