Finance minister Enoch Godongwana’s maiden budget speech on Wednesday will give an indication of the strength of SA’s fiscal position and whether the country’s debt can be kept at sustainable levels.
Analysts will watch closely to get an idea of whether economic reforms might be introduced to spark much-needed economic growth. While President Cyril Ramaphosa emphasised the need to accelerate structural reforms in his recent state of the nation address (Sona), it is unlikely that the government will embark on large-scale privatisation of state-owned entities or drastically cut the size of the public service.
That will put pressure on Godongwana to provide further financial relief to beleaguered state-owned firms such as Denel, Transnet, Land Bank and Eskom, all of which are buckling under enormous debt piles. With pressure mounting for the introduction of a basic income grant (BIG), and the political influence of unions making it unlikely public sector wages will be cut or frozen, economists will want to see how Godongwana manages spending pressures with market expectations that he keep government debt at manageable levels.
“We expect the budget to demonstrate a continued commitment to the current fiscal consolidation path while emphasising progress on growth-enhancing reforms and related infrastructure plans,” FNB economists Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano wrote in a client note.
Analysts will also be watching to see if Godongwana hikes the personal, corporate and VAT rates to bolster public finances, though this would be politically unpopular while heaping further pressure on struggling consumers already battling accelerating inflation and rising interest rates. While the government has enjoyed revenue overruns in the past year thanks to strong commodity prices, the economy has struggled to recover from the ravages of the Covid-19 pandemic and subsequent lockdown measures.
“We do not expect the budget to announce tax rate increases, which, with rising interest rates, could derail the economic recovery,” FNB’s analysts wrote. “However, if the social relief of distress grant is extended indefinitely … higher adjustments may be on the cards over the medium term.”
FNB expects Godongwana to announce that the Treasury has lowered its 2021 economic growth forecast from the 5.1% announced in last year’s medium-term budget policy statement to an estimate closer to its own forecast of 4.7%. With the bank predicting economic growth of just 2.2% in 2022, its analysts argue that Godongwana will opt to focus on widening the tax base by announcing measures to stimulate the economy rather than opting for tax rate increases.
While the budget speech is likely to dominate economic coverage this week, a raft of other data releases will give important indications of how the economy is faring. Chief among these will be the release of the Quarterly Labour Force Survey (QLFS) on Tuesday, which will show whether the unemployment rate increased from the record 34.9% reached in the third quarter of 2021. The median estimate of analysts polled in a Bloomberg survey suggests SA’s unemployment rate edged up to 35% in the fourth quarter of 2021.
Tuesday also sees the publication of the December business cycle leading indicator, which shows the direction in which real economic activity is trending.
Producer price inflation (PPI) for January, which will be published on Thursday, will give an indication of the price pressures being faced by manufacturers and other producers of goods and services.
PPI has been trending upwards due to rising fuel prices and other cost pressures, with the measure reaching an annual 10.8% in December, though it is expected to have moderated to 10.4% in January, according to the median estimate in a Bloomberg survey.
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