Attention will focus on Godongwana budget
Finance minister Enoch Godongwana will deliver the 2024 national budget on Wednesday with the daunting task of presenting a budget that keeps government expenditure in check in the face of a sluggish economy while finding the additional revenue needed to curtail rising debt.
The 2024 budget also comes during a crucial election year. It is arguably the most significant since the democratic elections of 1994 and will mark a pivotal moment shaping the country’s fiscal trajectory.
FNB chief economist Mamello Matikinca-Ngwenya said the 2023 medium-term budget policy statement highlighted a strained fiscal landscape due to lacklustre revenue performance and mounting expenditure pressures driven by the public sector wage bill, escalating debt servicing costs and the extension of the Covid-19 social relief of distress grant.
“Consistent with our expectations, the latest Bloomberg consensus estimate for 2023 growth stands at 0.6%, with forecasts rising to 1.2% this year and 1.6% next year,” Matikinca-Ngwenya said.
“We anticipate growth to reach 1.8% in 2026, aligning with the 2023 [medium-term budget policy statement] projections.”
She said that as the economy continued to grapple with infrastructure deficiencies across energy, roads, ports and rail, compounded by tight monetary policy and a sluggish external environment, “these factors collectively weigh on government revenue performance”.
Economists at the Bureau for Economic Research (BER) Tracey-Lee Solomon and Romano Harold said there were some hints in the state of the nation address about extending and improving the social relief of distress grant.
President Cyril Ramaphosa “spoke about National Health Insurance”, Solomon said. “We are not expecting any major moves [on it] in this budget, with Treasury likely being firm on additional expenditure streams [being] possible only with sufficient, sustained revenue.”
Harold said Ramaphosa also mentioned funds, including the Climate Change Response Fund, that would need money.
“There could be more on the need for a new, more credible fiscal anchor with the current expenditure ceiling not being a hard ceiling.
“There is also likely going to be mention of the need for the government to reconfigure, shrink. Though beyond promises to keep the wage bill in check, we do not expect more news in the budget,” he said.
On the expenditure side, more support for state-owned enterprises, especially Transnet, would be important to look out for. Treasury had already extended the guaranteed loan facility to Transnet but still needed R100bn for corridor investment, they said.
However, unlike straightforward bailouts, as in the case of other state-owned enterprises (SOEs) in the past, it seemed like the government was more open to private sector participation in the logistics space, they added.
“We are much more downbeat than Treasury’s latest, albeit by now outdated, debt projections. With revenue likely to be less than estimated in the [medium-term budget] and spending more, the picture should be worse than presented in November last year,” they said.
In November, the Treasury had debt peaking at 77.7% of GDP in 2025/26 and then slowly tapering off. The BER said it saw a peak only two years after that, with debt having risen to about 83% of GDP by then.
This is what the 2023 medium-term budget policy statement signalled would be announced in the 2024 budget:
● Proposal of tax measures to raise additional revenue of R15bn in 2024/25.
● Implementation of tax and expenditure measures to support the automotive sector during the transition to newenergy vehicles.
● Introduction of new fiscal anchors to ensure a sustainable, long-term path for public finances.
● Proposal to scale down outdated and unproductive programmes and entities.
● Creation of a new mechanism to attract financing from the private sector and international finance institutions for large infrastructure projects.
“With 2024 being a pivotal election year, spending pressures could intensify the strain on the fiscal framework, especially in the short term,” Matikinca-Ngwenya said.
She said the undisclosed ramifications of the government’s potential decision to tap into the gold and foreign exchange contingency reserve account to fund debt could have near-term implications on the framework, contingent on the manner and extent of its utilisation.
The quarterly labour force statistics for the final quarter of 2023 will be published on Tuesday. The unemployment rate fell to 31.9% in the third quarter, the lowest in a year, from 32.6% in the previous period. The youth unemployment rate, measuring jobseekers 15 to 24 years old, dropped to a more than oneyear low of 58%.
Nedbank senior economist Isaac Matshego said the labour statistics were likely to show a higher unemployment rate as the economy remained weak and business confidence depressed, undermining job creation.
The first consumer inflation data for 2024 is out on Wednesday. The annual inflation rate dipped for the second consecutive month to 5.1% in December 2023, from 5.5% in November and just below market forecasts of 5.2%. It was the lowest reading in four months, edging closer to the Reserve Bank’s preferred 4.5% midpoint of the 3%-6% target range.
The BER said it anticipated headline inflation would accelerate to about 5.4% in January. Nedbank forecast the consumer price index (CPI) accelerating at 5.3% in January, with overall prices rising 0.1% after no change in December, lifted by a modest rise in food prices. FNB said there was no monthly pressure as core inflation was mitigated by fuel, food and nonalcoholic beverages. The bank expects the disinflation trend to continue over the course of the year, averaging about 5.2% from 6% in 2023.
The Reserve Bank will publish the composite leading business cycle on Tuesday.