The focus will be on finance minister Enoch Godongwana this week as he tables the budget in parliament on Wednesday.
Godongwana is expected to highlight the better-than-expected fiscal performance over the past year and note good spending control and strong tax collection during the period. He is expected to emphasise the relatively strong GDP growth for 2022 as well as a slightly better budget deficit.
He is also expected to allocate funding for interventions recently announced by President Cyril Ramaphosa in his state of the nation address.
Data shows that in the first nine months of the fiscal year, main budget noninterest spending was up just 2.3% on an annual basis, against the medium-term budget policy statement target of 5.6% growth for the same financial year.
Main budget revenue was up 7.6% year on year in the first three quarters of this fiscal year, a little shy of the medium-term budget target of 8.3%, while the cumulative main budget deficit for April-December 2022 sits at R183bn.
Personal and corporate income tax figures for November and December were particularly strong.
Domestic VAT is up by 9.2% year to date, slightly behind the Treasury’s estimate of 11.2% for the full fiscal year.
But the 2023 national budget comes at a difficult time with load-shedding, an increase in spending risks and severe floods in many parts of the country damaging infrastructure that will have to be repaired in the medium term.
The country’s lacklustre medium-term growth outlook has been cited as one of the biggest issues of concern.
Load-shedding
The Reserve Bank slashed its economic growth forecasts for 2023 to 0.3%, from 1.1% previously. It also revised its days of load-shedding estimates to 250 in 2023, from 100 previously.
US-based ratings agencies — Fitch and Moody’s Investors Service — also flagged electricity shortages as a big downside risk to growth.
The Treasury had expected growth of 1.6%, but economists say the present scale of load-shedding implies notable downward revisions to GDP growth.
A diminished economic growth outlook is bad news for revenue growth and will lead to a cut in revenue forecasts.
Africa economist at Oxford Economics Jee-A van der Linde said markets and international ratings agencies are going to focus on how the Treasury reduces state spending and increases revenue without killing the already ailing economy in the process, while managing rising debt, debt-servicing costs and deficits.
“We do not expect immediate post-budget credit rating downgrades, but negative revisions to SA’s outlook are likely,” said Van der Linde.
Even though SA’s fiscal position improved in the past few years, with the budget deficit narrowing sharply from almost 10% of GDP in 2020/2021 to forecasts of about 5% in the present fiscal year, analysts warn there will probably be fiscal slippage, which will in turn increase the deficit.
Momentum Investments said rising expenditure pressures, including additional funding for diesel, a potential allocation to offset the negative effects of load-shedding on food prices for the poor, and inflation-relation adjustments to social grants, are likely to slow the pace of fiscal consolidation and could keep SA’s debt ratio stickier for longer.
Financial markets also expect a detailed plan on Eskom’s debt plan.
Citadel’s CIO George Herman said that despite talk of debt restructuring for the past few years nothing concrete has been done.
“There has also been considerable speculation about ‘unbundling’ Eskom into three different entities, and clarity should be given on this and on the way to resolve the now constant load-shedding issue,” said Herman.
He said the market is apprehensive about the possibility of a large portion of Eskom’s debt being absorbed into the sovereign balance sheet, which would have a significantly negative effect on the sovereign debt metrics.
Standard Bank said fiscal slippage seems inevitable, given the support for Eskom not being factored in before.
“We assume the planned debt relief for Eskom to entail five annual transfers of R50bn each, including the previous equity injections,” Standard Bank said.
The public sector wage bill will also be monitored closely. The Treasury pencilled in a negative real wage increase for 2023/2024.
Momentum Investments said even though the Treasury may want to maintain the 3% wage increase from October’s medium-term budget, high food and fuel prices will probably see a strong pushback from the unions.
“Negotiations could drag on for months,” Momentum Investments said.
Even though the Covid-19 grant was extended until the end of 2023/2024 at a cost of about R44.4bn, the medium-term forecast has no provision for this grant.
Bank of America Sub-Saharan Africa economist Tatonga Rusike said they expect Godongwana to make an inflation-related increase in the monthly stipend of R350 in line with announcements by Ramaphosa in his state of the nation address.
Other economic data coming out this week are the SA Reserve Bank’s leading business cycle indicator for December on Tuesday and the producer price index on Thursday.
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