All eyes on finance minister

All eyes will be on finance minister Enoch Godongwana on Wednesday when he tables the mediumterm budget policy statement in parliament.

It is projected to show a revenue overrun, with substantial tax receipts accrued earlier in the year aiding further fiscal consolidation. An improvement in the fiscal ratios is expected, underpinned by enhanced nominal GDP readings on elevated inflation.

On the expenditure side, higherthan-budgeted public sector wages, the bailout of state-owned companies and the extended social relief of distress (SRD) grants put additional pressure on government spending.

Godongwana is likely to pencil in 3% to cover public sector wage increases. This, on top of the 1.5% notch progression and the R1,000 per month posttax cash gratuity, would nudge up the deficit and debt ratios if the amount is not funded by higher projected tax collections or expenditure cuts.

Absa chief economist Peter Worthington said each one percentage point in the deal costs the fiscus R6.5bn, or about 0.1% of GDP.

Godongwana is likely to provide details on how Eskom’s debt will be handled. Treasury said pre- and post-deal conditionalities would be imposed on Eskom to secure any further fiscal support.

Another key issue is the future of the SRD, budgeted to expire at the end of financial year 2022/2023.

With SA’S fiscal performance stronger than expected, amid chronic and widespread poverty, as well as the ANC’S falling popularity, it is far from clear that Godongwana will have any support within the cabinet for curtailing the SRD, so the MTB is key to watch in this regard.

Should it be introduced into perpetuity, it will cost at least R48bn a year, after the R250bn on social grants in 2022/2023.

Climate financing is another issue. The state wants access to the $8.5bn pledged by richer nations for early 2023.

Alexforbes economist Isaah Mhlanga said it seems much of this funding is not grants but loans.

Investors expect Godongwana to provide detail on the quantum and detail of climate financing.

In terms of SA’S debt, Investec projects gross loan debt to be near 70% of GDP. The 2022 budget prediction was 72.8% for 2022/ 2023, with the following three medium-term years also improved by the inflationary effect.

The bank forecasts the budget deficit for 2022/2023 at 5.6% (previously 6%), the deficit for 2023/ 2024 at 4.4% and for 2024/2025 at 3.9% (previously 4.8% and 4.2%).

Stats SA will publish data on the producer price index (PPI) for September on Thursday.