Finance minister Enoch Godongwana resisted pressure to use the fiscal space delivered by a R120bn boost in tax revenue to announce new spending commitments, including meeting demands for a basic income grant.
Even as it acknowledged that the Covid-19 outbreak and the rioting and looting that rocked the economy and the country in July had "increased the national debate" on a universal support programme, the medium-term budget policy statement (MTBPS) indicated that the special Covid-19 grant of R350 a month would be allowed to lapse in March as planned.
However, the government also said it was considering options that could include a replacement of the grant, which could be announced in the February budget. Given that this would have "significant financial implications, a final decision must still be made on what is affordable, given the current fiscal context".
With the government expecting economic growth to slow after a spike to 5.1% in 2021 and additional spending on social relief dependent on whether "the fiscal situation improved" by the time the budget is unveiled in February 2022, the question of where additional resources would come from was left open.
In separate comments at a media conference, Godongwana said it was up to the cabinet to "make a choice" about what other programmes to cut.
"As things stand," he said, "the government as a whole has indicated that the special Covid-19 grants will end in March", so it was not accurate to say the Treasury had decided to discontinue them.
Ratings agencies might be left unconvinced by a lack of any allocation for state-owned enterprises (SOEs), given the financial and operational crises that most of them are in.
Questioned about the credibility of his "tough love" message on SOEs, Godongwana admitted that this was "not a blanket issue" and would depend on how strategic they were.
"Some will have to fall," he said. "They have to show that they can’t [be allowed to] fail."
The MTBPS on Thursday, the first since Godongwana replaced Tito Mboweni in a cabinet reshuffle in August, kept largely in line with what the previous minister had said and maintained the plan to achieve a primary surplus in 2024/2025.
Godongwana was firm that the current fiscal framework stood and stressed continuity with Mboweni’s stance. He even shared his disappointment with the slow implementation of structural reforms to boost the economy’s competitiveness.
"As far as the fiscal framework, we’re on the same page. As far as structural reforms, we are on the same page. Is the pace what we would have liked?"
The statement was well received in financial markets, with the rand gaining as much as 1.52% to R15.17/$, before being 1.22% stronger at R15.22 by 6pm. The message on fiscal discipline helped the bond market higher, with 10-year yields, which move inversely to the price, falling 17basis points to 9.23%.
The MTBPS emphasised that conditions that gave rise to a rosier fiscal outlook were likely to be temporary and that the government would have to stick to its plan to rein in debt.
Interest payments already take up 21c of every rand of revenue — more than the government spends on health, social development and policing.
Surging commodity prices will enable the SA Revenue Service to raise an extra R120bn than was estimated in the budget, with payments from corporates accounting for R75.5bn. Personal income tax collection brought in an additional R26.1bn relative to Mboweni’s projections earlier in 2021.
The 5.1% estimated expansion in GDP compares with a 3.3% projection in February and a contraction of 6.4% in 2020.
The Treasury then expects GDP growth to slow to 1.8% in 2022, moderating further to 1.6% in 2023, before a slight improvement to 1.7% in 2024.
The growth forecasts came with caveats, with the MTBPS warning that risks "remained elevated". These included the reduction of fiscal and monetary stimulus in developed markets and inequitable access to Covid-19 vaccines, which may make economies vulnerable to new waves of infections.
SA’s outlook could be hurt by Eskom’s load-shedding while "policy uncertainty and the slow implementation of structural reforms continue to weigh on business confidence and investment", according to the MTBPS.
Faster economic growth in 2021 will see the budget deficit narrow to 7.8% in 2021/2022 from 10% in the previous year. It will then drop further in the following three years, reaching 4.9% in 2024/2025. The faster growth, as well as a rebasing of the economy earlier in 2021 that revealed it to be about 11% higher than previously thought, has seen a marked improvement in debt as a percentage of GDP, which at the time of the Covid-19 outbreak was assumed by many economists to be on track to reach 100%. The government now expects the debt-to-GDP ratio to be at 69.9% in 2021/2022 and to peak at 77.8% in 2024/2025, having previously said it would climb to just more than 87% in 2023/2024.
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