What to wish for from medium-term budget
Economists want Godongwana to prioritise growth, tackling Eskom finances and reforms to regain investor confidence
In the week before finance minister Enoch Godongwana delivers his medium-term budget policy statement, economists have come up with a rather specific wish list aimed at alleviating some of SA’S biggest woes.
They urge Godongwana to implement measures to prioritise policies that grow the economy, address Eskom’s financial issues head-on, and stimulate reform to regain investor confidence.
Citadel’s chief economist Maarten Ackerman said they will pay close attention to how Godongwana balances aid and growth. Ackerman said the medium-term budget must prioritise economic growth policies to get SA out of its debt spiral.
“We’ll need to see what he does with the revenue windfall. We’d like to see it being used productively, not just on one-off temporary social spending that does little to nothing to drive economic growth,” said Ackerman.
In addition to providing the Treasury’s updated forecast of the likely budget outcome for this fiscal year, Godongwana will recalibrate the medium-term expenditure framework and tax-collection projections. He will include a statement on the medium- and long-term risks to public finances, and a detailed analysis of spending on public compensation.
Speaking at the annual conference of the Government Employees Pension Fund, Godongwana warned that downside risks to the economy are intensifying. He cited intensifying load-shedding, worsening geopolitical tension, faltering Chinese growth, rising inflation and tighter global financial conditions leading to capital outflows from emerging markets.
Godongwana said combining these risks could have a negative effect. But despite a poorer growth outlook, fiscal developments since February — notably main budget data from June to August and provisional financing data for September — continue to support an even more positive view.
Monthly Treasury budget figures show that tax revenue exceeded the February budget estimate by R162bn, or more than 2% of GDP. Taking into account the usual seasonality in monthly tax revenue, the overrun could be closer to R110bn, about 1.5% of GDP.
Ackerman said that how Godongwana uses “or misuses” the revenue overrun is extremely important as SA’S debt-to-gdp ratio is already far higher than it has been over the past decade.
“The deficit also poses a risk, so the fact that we are seeing slightly better numbers doesn’t mean the difficulties are behind us.
“If anything goes belly up, we’ll be close to the fiscal cliff again that [former finance] minister Tito Mboweni warned us about,” he said.
Absa chief economist Peter Worthington said they are waiting for answers, especially on the future of the Social Relief of Distress (SRD) grant, which was due to expire at the end of this fiscal year.
They want to see the broad outlines of the government’s approach to the long-awaited Eskom debt deal. Godongwana promised to disclose the quantum, timing and conditions associated with the power utility’s debt-relief package.
“We had been sceptical that the National Treasury would have advanced discussions with Eskom sufficiently to be able to present a comprehensive plan, but Godongwana’s latest comments are an encouraging sign that investors may get some certainty on this long-running issue,” said Worthington.
Worthington said the ANC’S waning popularity with voters suggests Godongwana might not have any political support within the cabinet for curtailing the SRD, so the medium-term budget “is key to watch in this regard”.
Investec chief economist Annabel Bishop said they expect gross loan debt will come to 69.2% of GDP for 2021/2022, vs the 69.5% of GDP projection in the February 2022 budget before the GDP revisions.
While state finances improved somewhat comparatively against GDP, the improvement can be easily overridden by increasing state borrowing, “which should not be used to fund SOE operations”, said Bishop.
She said borrowings should be used for fixed investment.