Civil society groups are again demanding the introduction of a basic income grant, days before finance minister Enoch Godongwana delivers the government of national unity's first midterm budget.
Godongwana is expected to stand firm in parliament on Wednesday on fiscal consolidation, specifically reducing government debt, curbing public spending and keeping a lid on the growth of the public sector wage bill.
An open letter to President Cyril Ramaphosa, co-ordinated by the Institute for Economic Justice, accuses the National Treasury of seeking to block the introduction of a basic income grant and asks that the medium-term budget policy statement (MTBPS) consider those struggling with the cost-of-living crisis.
Civil society groups want the grant at the food poverty line of around R800 per person.
“We make reference to the right to social assistance in particular, especially the development of government policy on introducing basic income. As we head towards the announcement of the MTBPS at the end of this month, we want to raise the alarm about disturbing trends in the determination of policy by Treasury,” the letter says.
It welcomes Ramaphosa’s renewed commitment to introducing a system of basic income support from the foundation of the Social Relief of Distress (SRD) grant but expresses concern at the recent silence over the transition to a permanent system of basic income.
“This is at a time when desperation in the country continues to increase. The number of people applying for the SRD grant continues to grow, with over 17-million active applications — this roughly corresponds to expert estimates of need and eligibility.”
Analysts suggest Godongwana will look to table a safe MTBPS and keep the fiscal affairs of South Africa as uneventful as possible while the global investor community becomes more acquainted with the GNU.
North-West University's Prof Raymond Parsons said that as the MTBPS would be the first for the GNU, Godongwana's overall message would have to reflect the coalition's overarching commitment to higher and sustained job-rich growth.
“This means that the MTBPS must, therefore, be a confidence-building budget that capitalises both on the policy momentum created by the GNU as well as the tangible evidence of an incipient economic recovery.
“The emphasis must be on investment-led growth. To this end, the MTBPS must be based on growth assumptions over the next three years that are positive, realistic and credible. Higher growth is essential if the MTBPS is to succeed in stabilising the still challenging high debt-to-GDP ratio.”
He said the deployment of the gold and foreign exchange contingency reserve account (GFECRA) must be seen as a useful support mechanism for alleviating debt pressure on the fiscus, but it was not a magic wand. The finance minister announced in February that the government would withdraw R150bn from the South African Reserve Bank’s R500bn GFECRA to reduce borrowing and debt-service costs.
Parsons said the GFECRA money merely buys time for other fiscal steps to be implemented.
“To stabilise the high debt-to-GDP ratio still requires tough decisions around the reprioritisation of state spending, debt management and the need for faster growth-friendly structural reforms.”
By projecting good fiscal governance, a credible three-year outlook and solid risk management in South Africa's changing political economy, the 2024 MTBPS could gain further ground for the country's creditworthiness.
Old Mutual investment strategist Izak Odendaal said the MTBPS would show broad continuity with the February budget speech, despite the elections and formation of the GNU.
Analysts suggest Godongwana will look to table a safe MTBPS and keep the fiscal affairs of South Africa as uneventful as possible while the global investor community becomes more acquainted with the GNU
“The GNU remains committed to reducing excessive government debt levels and I therefore think Treasury has a mandate to stay on the fiscal consolidation path. Tax revenues are slightly behind target, but not particularly worrying, while spending has been mostly on track.”
He said while there was ongoing commitment to fiscal consolidation and structural reforms to raise the economic growth rate, more evidence was needed for the ratings agencies to start changing the outlook on South Africa.
Investec economist Tertia Jacobs said she expected to see fiscal policy continuity.
“The October MTBPS will build on the February 2024 budget and there the focus has been on fiscal consolidation. They increased the SRD grant, that actually only transpired in April, so that social support will continue.”
Momentum Investments Group chief economist Sanisha Packirisamy said the GNU created a framework for enhanced political stability, fiscal responsibility and renewed optimism over economic reforms.
“Since the last economic forecast update by National Treasury in February 2024, growth in the medium-term is likely to be adjusted higher on the back of an improvement in South Africa's network industries and early pension withdrawals related to the two-pot retirement reforms.”
She said despite displaying one of the sharpest rates of deterioration in the debt-to-GDP profile, Treasury’s February 2024 estimates highlighted a faster than expected contraction in the budget deficit ratio and an earlier stabilisation in the debt ratio relative to developed market and emerging market composites.
“Potential financing pathways for plugging the budget gap: Fiscal performance is expected to largely align with the February 2024 budget estimates, and the R100bn in GFECRA cash has alleviated funding pressure, so we do not anticipate any major changes in domestic issuance in the near term.”
She said the prospect of fiscal consolidation under the GNU, coupled with ongoing reform efforts, could be sufficient to shift the neutral or stable outlook on the country’s sovereign rating to positive in the first half of next year.
“However, a formal upgrade is unlikely to be seriously considered until late 2025 or early 2026, as ratings agencies typically require a proven track record of reform implementation and clear evidence that these efforts are driving sustained growth.”
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