As finance minister Enoch Godongwana prepares to deliver his budget speech on Wednesday, economists say there is too much uncertainty ahead of the presentation.
They warn that mounting economic and political challenges may set the stage for the fiscal scales to tip towards providing more support to socioeconomic programmes and away from fiscal consolidation.
Other developments, including the imminent public sector wage strike, have also led some to question the viability of projections made by the Treasury in October’s medium-term budget policy statement (MTBPS).
Absa chief economist Peter Worthington said those projections were “unrealistic”.
Michael Sachs, former head of the Treasury budget office, called them “implausible” and said recent developments mean the Treasury’s spending path “is not to be believed” because it significantly underestimates spending pressures.
But where should the finance minister’s focus lie?
Investec chief economist Annabel Bishop believes the focus should be on the degree of deterioration of fiscal ratios due to downward revisions to economic growth and revenue.
As financial markets grow impatient waiting for an Eskom debt solution, some say that Godongwana may disappoint again and fail to provide information on the size and mechanics of the debt deal.
Worthington does not expect a full Eskom debt deal to be unveiled and implemented.
“This is because of its complexity and Eskom’s apparent lack of progress on the Treasury’s conditions for granting big debt relief. For example, Eskom seems to have made no headway on lowering its internal cost base and its hands seem to be tied in terms of the Treasury’s demand that it resolves the problem of growing municipal debt arrears,” Worthington said.
It is also seemingly proving difficult to secure creditor consent for a formal debt exchange.
But Bank of America said it assumes that the government will take a gradual approach to the debt takeover. Economist Tatonga Rusike said the government would take R80bn each year over the period 2023 to 2025 for a total of R240bn.
“This is equivalent to just over 3% of GDP in total,” he said. “Instead of transfers to Eskom, the government now directly pays the debt service maturities coming due and interest payments without changing the terms and conditions on existing securities. This would help to avoid technical default situations with restructuring.”
On Monday, Business Day reported that the Public Servants Association said the government tabled a 4.7% wage hike offer at the bargaining council for the first year of a three-year offer. The association wants a 12.5% hike for 2023/2024.
Other public sector unions have refused to participate in the bargaining council process until the government resolves dissatisfaction about the pay award for 2022/2023, when it unilaterally imposed a 3% wage hike. The unions have threatened to go on a seven-day strike when Godongwana tables the budget.
Rusike said Bank of America believed wage increases were likely to be contained again.
“The era of wage increases substantially above inflation seems to be over despite revenue overperformance over the past two years,” he said.
Economists foresee downside revenue pressure in fiscal year 2023/2024 compared with the medium-term budget targets. The MTBPS pencilled in a main budget deficit of R286bn, or 4.1% of GDP, for 2023/2024.
Worthington said this was unrealistic. “Export commodity prices have softened materially, down nearly 9% so far this quarter compared with quarter four 2022 and the growth outlook has wilted under intensified load-shedding,” he said.
Absa expects the Treasury to make further allocations to state-owned enterprises (SOEs) when specific bailout demands are received.
“This could perhaps lead to midyear adjustment allocations similar to the 2022 MTBPS for Sanral, Transnet and Denel, amounting to R30bn in total. With newspaper reports suggesting that Transnet asked for a R40bn bailout at the MTBPS [it] got just shy of R6bn,” Absa said.
Other loss-making SOEs are expected to ask for further support, though Godongwana seems committed to a tough love approach, the bank said.
Other spending pressures include a support package to households and businesses. In his state of the nation address, President Cyril Ramaphosa said the social relief of distress grant would be increased to offset the effects of inflation.
Worthington said that if Godongwana grants a full inflation offset on the R350 a month grant since it was implemented in early 2020, it would have to be increased by 15%, which would cost an additional R5bn.
The Institute for Economic Justice said the Treasury has, over the past few years, repeatedly opposed extension and improvement of the grant. The NGO said it will challenge any further erosion of the grant.
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