Finance minister Enoch Godongwana will on Wednesday deliver the medium-term budget policy statement (MTBPS), providing a midyear update of public finances for the current fiscal year and a recalibration of the medium-term expenditure framework.
Much has changed since the budget was tabled in February.
Low economic growth, high government debt, insufficient taxes, energy and transport insecurity, the unemployment crisis, the public sector wage bill, rising inflation, the impact of geopolitical events and SA’s own upcoming election will make Godongwana’s medium-term budget a tough balancing act.
The policy statement also comes against the backdrop of months of unprecedented load-shedding and sharply lower export commodity prices, which adversely affected tax revenue receipts and are projected to reveal a deterioration in fiscal metrics.
North-West University professor Raymond Parsons said these factors have now severely reduced available fiscal space, necessitating a realistic approach to a less favourable set of circumstances.
“If the medium-term budget is not credible in its actions, it will be assumed that there will just be more borrowing or big tax rises to come later,” Parsons said.
He added that government bailouts to struggling state-owned enterprises (SOEs) remain a persistent problem. “Transnet recently asked government for financial support, which is basically a bailout, to implement its turnaround plan,” he said.
Tax shortfall
Citadel chief economist Maarten Ackerman said slow economic growth since the February budget, along with load-shedding, resulted in a more than R20bn shortfall in tax revenue.
FNB expects the main budget deficit to widen to about 5.1% of GDP in 2023/24 compared with the Treasury’s projection of 3.9%, chief economist Mamello Matikinca-Ngwenya said.
Due to lacklustre economic growth and swelling spending pressures, the deficit is likely to remain wide over the medium term. “This, with the already committed R254bn Eskom debt relief and looming large redemptions, implies that government gross debt could be shown to stabilise at a higher level in 2025/26, if not significantly beyond.”
Absa expects the Treasury to revise its revenue forecast for 2023/24 down by R35bn relative to the February target.
Absa senior economist Miyelani Maluleke warned that corporate income tax (CIT) and VAT will be under the most pressure, while personal income taxes are showing resilience. “In the first five months of the fiscal year, CIT receipts are down 15% year on year. We believe this mostly reflects the effects of shrinking mining profitability.”
He said Absa expects the main budget deficit to be much wider than the Treasury’s February target. “Given our forecast of a revenue shortfall and our view of expenditure slippage with limited offsetting measures, we expect a main budget deficit of 6.6% of GDP, or R461bn, in 2023/24.
“Our approach includes Eskom’s debt relief deal above the line since this entails a transfer of fiscal resources. Using the Treasury’s approach of accounting for Eskom debt relief below the line, our forecasts imply a main budget deficit of 5.5% of GDP in 2023/24 relative to the Treasury’s target of 3.9%.”
Credit extension
Other economic data coming out this week include the SA Reserve Bank’s data on private sector credit extension for September, due on Monday.
“Overall, the general slowdown in private sector credit growth is consistent with restrictive monetary policy and tighter lending standards,” Matikinca-Ngwenya said. “In the household sector, data suggests that demand for unsecured credit, particularly credit cards, remains robust, both in bank and nonbank sectors.”
On Tuesday, the SA Revenue Service (Sars) will publish the trade balance for September. The August trade balance recorded a R13.3bn surplus, reflecting a marginal compression from the R15.4bn surplus in July.
Investec expects the surplus to narrow in September to about R8bn on a rise in the value of imports as oil prices increased during the month.
Other data coming out this week is Absa’s purchasing managers’ index for October, while Stats SA will on Thursday release data on electricity generated and available for distribution for September.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.