The Treasury still intends to meet fiscal targets it set itself in February, and none of the data indicated it would miss them, but there are still many “moving parts”, says treasury director-general Duncan Pieterse.
He was speaking at the weekend on the sidelines of the New Development Bank (NDB) annual meetings in Cape Town.
His comments may be among the last from the Treasury to guide the market before finance minister Enoch Godongwana’s medium-term budget on October 30. The Treasury goes into its usual “close-out period” on September 30 when officials hold no investor meetings or media interviews while they finalise the budget numbers.
Pieterse said this week’s second-quarter GDP print would be important to give a sense of fiscal ratios such as the primary budget balance and debt-to-GDP. GDP in nominal (money) terms is the denominator for these.
Big shifts can tip fiscal targets. Latest revenue numbers for the year to date were weaker than expected, he said, but not as much as last year when corporate income tax receipts came in far lower than expected early in the year, forcing the Treasury to implement in-year spending cuts.
This time, the revenue outcome would not necessarily put pressure on Treasury’s ability to meet the fiscal targets. It had also benefited from improved fundraising dynamics, with bond yields falling and more shorter-term debt issuance, all of which reduced costs.
The spending side was a “mixed bag” with some underspending and overspending, but it generally was on track, said Pieterse. “None of the data we’ve seen suggests that we are necessarily going to miss it [fiscal target], but you’ve got all these moving parts, and we’ll have to see how it all comes together.”
The budget showed the government achieved its first primary fiscal surplus since before the 2008-09 global financial crisis. The Treasury projects the public debt ratio will stabilise at just more than 75% this fiscal year before falling. But many economists, including the IMF’s, are sceptical.
In a report on SA this week the IMF repeated its baseline forecast that deficits will come in higher than Treasury projects and the public debt will not stabilise in the medium term. The IMF is expected to revise its SA forecasts in its October world economic outlook, and in more detail in its Article IV report on SA early next year.
Some economists expect the finance minister may report a revenue shortfall this fiscal year, but Goldman Sachs’ Andrew Matheny expects revenue may overshoot budget targets by R10bn. He expects the Treasury to wait for December tax numbers before it revises estimates. December and June are key months for corporate income tax collection; June numbers were weaker than expected.
Eurobond markets
The NDB approved low-interest loan packages of $1bn for Transnet and $1bn more to the government to support water and sanitation infrastructure development, adding to billions of dollars in concessional lending by SA in the past four years from multilateral institutions including the IMF, World Bank, the NDB and other international development financiers.
Foreign loans remain only 10% of state borrowing, most of it in hard-currency bonds raised on international capital markets, the eurobond markets.
Pieterse said the Treasury took advantage of these concessional loans in its strategy to cut its cost of borrowing and diversify dollar borrowing away from the eurobond market in recent years.
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