The Medium Term Budget Policy Statement (MTBPS) always disappoints because it never provides detailed information on the immediate challenges in the country.
This year’s MTBPS was no exception, as there were no definitive announcements of amendments or policy interventions to address the country’s key challenges.
Join heated discussions with the Moneyweb community and get full access to our market indicators and data tools while supporting quality journalism.
R63/month or R630/year
You can cancel anytime.
No ‘BIG’ ad in the mini budget
Godongwana commits to fiscal consolidation
What was revealing, however, was the convincing conduct of the new finance minister, Enoch Godongwana.
This was critical, as he had to step into the big, confident shoes of his predecessor Tito Mboweni. I think he could do this.
But Godongwana can count his lucky stars in two key developments, which made his message far more positive than it would have been. They are the commodity boom and an aggressive readjustment of GDP, which resulted in the latter being 11% larger than previously thought.
These factors, which were totally beyond its control and the government’s control, have boosted tax revenues and increased the size of GDP to such an extent that it has pushed the country’s fiscal position back to the brink of a very deep precipice.
Unexpected R120bn Tax Collection Increase May Not Be Sustainable
The Treasury forecasts a GDP growth of 5.1% in 2021
The commodities boom resulted in tax revenue exceeding estimates by a whopping R120 billion. This is not a small change and will plug a lot of holes in the need for cash. Hopefully, this money will end up in economic development initiatives and not in bailout packages for more state-owned companies.
Government willing to ‘divest’ of some state companies
SA seeks to curb debt, curb the expansion of well-being
Exceeding GDP can have a more positive impact. It will result in deficit and debt levels being measured against higher GDP, making them much more favorable.
According to the MTBPS, the budget deficit will be reduced from 7.8% of GDP in the current fiscal year to 4.9% in 2024/25. It is much better than the terrible picture that Mboweni painted in the February budget, when he anticipated that the deficit could exceed 14%.
The debt-to-GDP ratio also looks much better. Before the Covid-19 outbreak, the ratio was rapidly approaching 100% of GDP. The government now expects a much lower level of around 70% in February next year. According to the MTBPS, it will peak at 78% in 2024/2025.
If this is achieved, it will represent a remarkable recovery.
The question is whether Godongwana and his colleagues can appreciate the impact of the heaven-sent windfall and use it productively. On paper, at least, as articulated by the MTBPS, it seems they have.
However, the government’s long history of broken promises has created much skepticism.
South Africa is not a happy place. I listened to Godongwana on Moneyweb live stream on my cell phone, with expensive mobile data due to loss of charge.
Early Thursday, I passed a factory where many workers were idle while waiting for power to return. Factory owners’ costs are exponentially higher.
It is also the reason why the confidence levels of companies and investors remain at record lows. It is indicative of a deficit of confidence in the government’s ability to address rudimentary structural issues to create a business-friendly environment.
Most frustratingly, our beautiful country has been blessed with the resources, commodities, financial systems, and geographic importance to make it relatively easy for the economy to grow at 3% +.
But again, South Africa has never lived up to its potential; the resilience of its people has kept us going.
The proof, as always, is in the pudding.
We are tired of being promised that pudding is on its way. Godongwana and his government colleagues should stop talking and put it on the table for everyone to try.
Listen / Read Transcript: Alexander Forbes Chief Economist Isaah Mhlanga Shares MTBPS 2021 Economic Findings