The Medium Term Budget Speech will be tabled at 2pm on Wednesday, and most economists and wealth managers will be looking at what plans government will implement, while consumers will be looking at how this will affect their day-to-day living.
While most cannot say exactly what Finance Minister Enoch Godongwana will say in his speech there are basic realities that cannot be ignored.
Overall, a revenue shortfall of R60 billion (0.8% of GDP) is expected in 2023/24. This is according to Arthur Kamp, Chief Economist at Sanlam Investments.
Kamp says that combined with some expenditure slippage, this implies a main budget deficit of -5% of GDP in 2023/24, “which is markedly larger than the deficit of -3.9% of GDP originally projected in the February 2023 Budget Review”.
It should be noted that Kamp’s comments and analysis does exclude the support for Eskom amounting to R78 billion (1.1% of GDP) in the current fiscal year. This is not reflected in the budget deficit, and Kamp states that it must be funded and this therefore increases the central government’s debt level.
“It will be difficult to reduce the large budget deficit meaningfully over the medium term. At an estimated 32% of GDP in 2023/24 government consolidated expenditure is too high,” Kamp notes.
He notes that the 2023 Budget Review shows increases in consolidated non-interest spending of just 5% and 4.2% in current prices in 2024/2025 and 2025/26 respectively (before potential adjustments in the 2023 MTBPS), which implies flat, or possibly negative growth in real terms.
Therefore Kamp believes additional expenditure cuts will be hard to implement but certain cuts will be made for the poor.
“It is, after all, untenable to ignore the plight of South Africa’s poor.”
He concludes that government will provide support for State Owned Entities, potential additional spending may be given for the Basic Income Grant and National Health Insurance.
SA’S DECLINING FISCAL HEALTH
Casey Delport, an investment analyst in fixed income, Anchor Capital said that the substantial rise in SA's fiscal risk premium and the notable steepening of the SA government bond (SAGB) yield curve throughout 2023 are clear indicators of SA’s declining fiscal health, in addition to the prevailing global headwinds.
“Domestically, the two primary factors driving this decline are the energy and transport logistics crisis and the negative feedback loop involving underperforming SOEs and government bailouts.”
Delport said that additionally international factors, including dwindling commodity prices and soaring US Treasury yields, have served to increase the pressure on an already fragile fiscal situation in South Africa.