Finance minister’s mini budget mostly positive
ECONOMISTS and financial commentators have been guardedly positive about Finance Minister Enoch Godongwana’s Medium-term Budget Policy Statement (MTBPS) delivered to Parliament on Wednesday, with its implications for consumers to be taken in the context of a tough global economic environment.
Casey Delport, investment analyst, fixed income, at Anchor Capital, said the statement was positive and prudent, but significant risks remain. She noted that government revenue continued to surprise on the positive side – around R83.5 billion higher than forecast in the February Budget, with total revenues pencilled in at R106bn higher (higher than even the most optimistic of forecasts).
“While this may be reachable, depending on how the macroeconomic background unfolds, a level of caution is warranted given the growing concerns about downside global and local growth risks.
“Locally, the economy is dealing with domestic energy and logistics crises, limiting growth over the next 12 to 18 months, and political uncertainty surrounding the upcoming ANC elective conference in December. Positively, however, the fiscal outperformance has been used prudently – the revenue overrun has largely been used to reduce the use of cash balances,” Delport said.
“It is concerning, though, how little detail has been provided on the growing stress around the stateowned enterprises (SOES), … with no formal provision for additional support for Eskom yet, beyond a vague indication that relief should be between one-third and two-thirds of Eskom’s debt.
“A sizeable unallocated reserve is set aside as a buffer, but this cannot fully cover these spending pressures if they materialise,” she said.
However, Delport said a key positive story was the continued downward trend in South Africa’s debt trajectory.
“Looking at the forecasts of government debt in the MTBPS 2020 and 2021 and this year’s budget speech, we see a significant downward trend in the debt forecasts as a percentage of GDP. The MTBPS 2020 forecast that in 2024/25, government debt would be 90.4% of GDP.
“This has since been adjusted significantly downward to the latest projections, which now forecast 2024/25 government debt at 70.4%.”
Delport pointed out, however, that higher interest costs meant that the cost of repaying this debt would be almost R6bn higher than was expected in February.
Bernard Sacks, tax partner at Mazars in South Africa, said the boost commodity prices gave to tax revenue appears to be over, but the corporate sector, which includes finance, banking and real estate, seems to have performed “better than anticipated”.
“Tax collections are down in some respects, such as the fuel levy, due to the fuel levy relief fund, and is increased in other areas, specifically corporate tax and personal tax.
“No new taxes have been announced, which is normal for this time of year. There have been a number of fresh allocations to SOES, some of which have been announced. What does seem to be good news is the fair amount of infrastructure spending planned, which, in turn, will assist with stimulating the economy.
“There’s a move afoot for government to take on a chunk of the Eskom debt; however no detail has been provided on how this will be implemented. Come the main Budget in February, Treasury will need to show how this will be funded,” Sacks said.
Carmen Nel, economist and macro strategist at Matrix Fund Managers, said it was pleasing to hear that the Financial Action Task Force greylisting process was set to be concluded by February, “which may also have received outsized attention in the lead up to the MTBPS.”
Nel said a reason for circumspection was that “Treasury expects growth to hold up (around 1.8% over the medium term) despite the current slowdown in the global economy, with some of the world’s largest economies – such as Germany and the UK – already skirting with recession. As growth in China and the US move well below trend, it is difficult to see how SA’S growth will hold up when we add in domestic monetary policy tightening and what seems to be a commitment towards fiscal consolidation.”
Christie Viljoen, PWC South Africa senior economist, said: “The extension of the R350 grant is welcomed, given that the outlook for fiscal revenues in 2023/2024 has improved and could be R95bn more than previously projected.
“This will have a positive socio-economic impact on South Africa. However, it is critical that the framework for a comprehensive social security must be detailed in Budget 2023 given the country’s socio-economic challenges and ongoing widespread debate about a basic income grant (BIG).
“There are currently 12.3 million unemployed adults in the country with many looking at the state for solutions to their financial dilemmas.”
Viljoen also welcomed the minister's commitment to managing the public sector wage bill by announcing that the fiscus would accommodate a pensionable salary increase of 3% for public servants – “notably lower than what labour unions are currently asking for”.
On implications for financial markets and their reaction, Chantal Marx, head of investment research at FNB Wealth and Investments, said: “This was a steady budget from a market perspective, striking a decent balance in being equity and bond friendly. The rand held firm, bond yields came down across the curve and the equity market held its own. The Financials 15 index spiked up during the speech and the Mid-cap Index (a good proxy for SA Inc share – those companies primarily South Africa focused) turned positive during the delivery after having traded in the red for most of the day.”