Finance minister Enoch Godongwana is expected to present a “good news” budget that should enable the government to reduce its borrowing at least for this year, thanks to a commodity price windfall, which has seen tax collections run way ahead of budget estimates.
But economists warn that the revenue overruns won’t last and SA’s public finances are still not sustainable over the medium to long term without much faster rates of economic growth.
It is expected that tax collections could come in as much as R200bn higher than estimated in last February’s budget, much of this from corporate income taxes, especially mining taxes.
That will see the main budget deficit for the current fiscal year come in closer to 5% than the Treasury’s revised 6.6% estimate in November, with better-than-expected revenue also expected to improve deficit and debt ratios in the coming year.
Going into the budget, economists believe the government could use part of the overcollection on taxes to cut its weekly debt issuance on the bond market, which would help to contain borrowing costs, which are among the highest in emerging markets.
Wits University professor Michael Sachs has also urged that the government use the opportunity of the temporary fiscal space to tackle Eskom’s debt burden, given that a bankrupt Eskom is one of the biggest risks to the public purse and to SA’s growth prospects, as well as a constraint on SA’s energy transition.
The government has guaranteed a substantial portion of Eskom’s almost R400bn of debt and it’s long been suggested that the ailing power utility needs to get about half of that debt off its balance sheet to be sustainable without government bailouts.
Sachs, who is a former head of the Treasury’s budget office, on Monday said that the government should use the benign macroeconomic conditions to take some of Eskom’s debt on to the sovereign balance sheet, possibly through a voluntary swap of its debt for national government debt.
Godongwana revised estimates of revenue for 2021/2022 up by R120bn in November’s medium-term budget statement, but economists expect revenue will overshoot that estimate by more than R75bn, with a further overshoot of R50bn-R100bn in the 2022/2023 fiscal year.
And though spending pressure is rising as well, the government’s borrowing requirement in the coming year is expected to come down, which would be a positive signal to bond market investors.
The Treasury reduced its weekly bond issuance on the domestic market twice in 2021 and there could be scope to reduce it further, though that also depends on whether it goes to the international bond market as planned to raise $3bn before the end of March.
RMB Morgan Stanley economist Andrea Masia sees scope for the Treasury to reduce weekly bond auctions by up to R1bn and he expects the budget deficit could narrow to 3.7% by 2023/2024, though he cautions that with spending commitments rising, SA is not entirely out of the woods and on the path to sustainable public finances.
Absa economist Peter Worthington sees the deficit for the current year coming in at 5.5%, falling to 4.7% next year. But he points to upward spending pressures, including R42bn to extend the social relief of distress grant and public sector wage demands, as well as bailout requests from state-owned enterprises.
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