Wednesday, January 26

SA’s Godongwana Tackles Policy Tightrope in First Budget


Finance Minister Enoch Godongwana faces the challenge of presenting a clear strategy to revive South Africa’s torpid economy and return public finances to a sustainable path when he presents his first medium-term budget on Thursday.

Key metrics in the spending plan for the next three years will benefit from windfall mining revenues and upward revisions to gross domestic product, and the budget deficit is likely to narrow faster than expected.

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Still, the country is grappling with rising debt and loan servicing costs as the ravages caused by the coronavirus pandemic compound a deterioration in state finances caused by overspending, mismanagement. and corruption.

Debt levels are expected to continue rising, peaking at 79.2% of GDP in fiscal 2027, according to the median of estimates from seven economists in a Bloomberg survey. While that’s better than the February National Treasury projection that it would stabilize at 88.9% of GDP in 2026, the improvement is largely due to a review by the statistics agency that found that the most industrialized economy Africa is 11% larger than previously estimated.

Investors will look to Godongwana for concrete plans to control debt and reduce anticipated budget deficits.

What the Bloomberg economist says …

“Both the South African government and the market are likely to celebrate lower debt and deficit figures when new Finance Minister Enoch Godongwana releases the medium-term budget policy statement on November 11. We remain skeptical. The readjusted data will undoubtedly reduce the country’s debt as a percentage of GDP, but it should not change the direction of travel as the underlying fundamentals have not changed. “- Boingotlo Gasealahwe, Africa Economist

Since his appointment on August 5, the former trade unionist and head of economic transformation in the ruling African National Congress has promised political continuity.

It is expected to stick to the fiscal consolidation plans of its predecessor Tito Mboweni and focus on “growth stimulating measures, moving away from accelerating current spending,” according to Annabel Bishop, chief economist at Investec Bank Ltd.

Its resolve may be tested by the ANC’s worst electoral performance last week since the end of the white minority rule in 1994. Opposition to austerity measures by factions within the party could intensify and lead to pledging more support. before the national elections in 2024, he said. Lumkile Mondi, Senior Lecturer in Economics at the University of the Witwatersrand.

A monthly welfare payment of R350 that was reintroduced in the wake of deadly riots, looting and arson in July is scheduled to end in March.

Civil society groups have proposed the introduction of a basic income grant that business organizations say is unaffordable.

The budget can show President Cyril Ramaphosa’s current thinking on social support.

“If a more permanent expansion of the subsidy system is introduced, it is likely that a more permanent income stream should be considered to limit the drag on the fiscus,” Momentum Investments analysts Herman van Papendorp and Sanisha Packirisamy said in a note.

In February, the Treasury scrapped plans to increase taxes and announced proposals to reduce the corporate tax rate to 27% starting in April.

Significant welfare commitments, combined with the risk that civil servants’ pay agreements will exceed the budgeted amount and more bailouts for state-owned companies will compromise plans to align spending with revenue.

This year, the Treasury shifted its focus to making a primary budget surplus, rather than a spending ceiling, its most critical fiscal anchor. However, two-thirds of economists in a Bloomberg survey do not expect the government to meet its goal of reaching it by 2025. A primary surplus, which excludes interest costs, would suggest that the state can extract the necessary resources from the economy to debt service, the fastest growing spending item since 2011.

© 2021 Bloomberg


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