The 2023 national budget is expected to reveal good news on the past year, with elevated tax revenue, strong nominal GDP growth and some underspending likely to deliver a slightly better-than-expected budget deficit.
Unfortunately, this rosy picture is rapidly turning. Thanks to SA’s escalating energy crisis the 2023/2024 year is going to deliver growth that is far slower than expected. So, a year from now the deficit could easily be heading back up again, wiping out SA’s recent fiscal progress, most of which is thanks to the fading commodity boom anyway.
Given the intensification of load-shedding and the depressive effects this will have on economic activity, the National Treasury is going to have to cut its growth and revenue forecasts on budget day next week.
If it is as bearish as the Reserve Bank — which now forecasts real GDP growth of just 0.3% this year (1.1% previously), rising slowly to 0.7% in 2024 (1.4% previously) and 1% in 2025 (1.5% previously) — it will have to more than halve its average medium-term forecast from 1.6% to closer to 0.6%.
This means tax revenue will fall short of expectations, leaving the finance minister with less to spend at a time when President Cyril Ramaphosa has just added a whole lot of new unbudgeted priorities to an already large to-do list.
From the recent state of the nation address we know “significantly more” funding will be extended to the police and criminal justice system. There will also be a load-shedding relief package that will include tax incentives to encourage people to install rooftop solar as well as measures to reduce the impact of load-shedding on food prices.
Economists are hopeful that the state of disaster declaration will not give rise to a short-term fiscal injection that generates little in multiplier benefits for the economy. Rather, the hope is that it will be used to accelerate legislation and incentives that encourage the permanent take-up of renewables and self-generation.
Though the situation may call for fiscal stimulus, the National Treasury is firmly committed to stabilising the debt ratio at its current level of about 71% of GDP and will not easily relinquish this prudent but ambitious goal.
However, given that the economy is barely growing, the Treasury will now either have to allow some fiscal slippage over the medium term (sacrificing some credibility as it pushes out the goal of debt stabilisation yet again) or double down on expenditure restraint — which seems politically unrealistic in the face of intense public dissatisfaction and a looming general election.
The problem is that the medium-term budget is already extremely tight. It does not allow for any further extensions to the social relief of distress grant beyond March 2024 or for annual wage increases that exceed 3% for public servants or for further state-owned enterprise bailouts, or for a doubling of Eskom’s diesel bill — all of which will surely materialise.
On the upside, the Treasury has stashed R110bn into various reserves precisely to cover such probabilities — though that probably won’t be enough. Also positive is that tax compliance efforts by the SA Revenue Service (Sars) are yielding such strong results that there is no need for new taxes at this stage.
The most likely outcome is that fiscal consolidation will proceed slightly slower than promised. This should not be a train smash leading to rating downgrades or market turmoil, since nobody outside the Treasury expected debt to peak at 71% this year anyway. But it does show just how elusive the goal of debt stabilisation is in a country that continues to fail to get on top of its growth constraints.
The bottom line is that SA needs to keep improving its fiscal position, but this won’t happen until it raises the growth rate, which in turn relies on load-shedding being dramatically reduced. Everything now depends on improving SA’s energy supply. Without it, the country is dead in the water.
• Bisseker is a Financial Mail assistant editor.
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