All eyes on mini-budget

Wednesday, October 30, 2019

South Africans are anticipating an update today on the economy’s health as Finance Minister Tito Mboweni is scheduled to table the Medium Term Budget Policy Statement (MTBPS) in Parliament, this afternoon.

Mboweni is set to deliver the MTBPS, which is also known as the mini-budget, in the National Assembly in Cape Town.

The MTBPS plays a critical role in the overall budget process because it sets out the policy framework for the upcoming budget.

The tabling of the MTBPS, whose original date had been moved, also provides the country and its elected representatives with an update on National Treasury’s assessment of the current economic climate and outlook.

Ahead of the tabling of the MTBPS, Nedbank economists noted that there is no fiscal room for manoeuvre.

“As there is no fiscal room for manoeuvre left, expectations are that the Minister will illustrate greater resolve in restoring fiscal sustainability. The focus is likely be on structural economic reforms to grow the economy and stimulate job creation as well as improve the efficiency of tax collection measures and government expenditure,” said Nedbank economists in a research note.

The economists expect to see details on how government plans to assist and reform struggling State-owned enterprises, particularly Eskom.

On Tuesday, Public Enterprises Minister Pravin Gordhan released details of Eskom’s Special Paper that sets out in detail “a comprehensive roadmap for Eskom in a reformed electricity supply industry”.

At the media briefing releasing the paper, Gordhan detailed plans to separate the transmission component of Eskom into a subsidiary of Eskom Holdings by March next year, while the generation component will be divided into three clusters to create intra-company competition.

Meanwhile, the economists expect South Africa’s revised budget deficit of over 6% of Gross Domestic Product (GDP). The 2019 Budget tabled in February proposed large-scale expenditure reprioritisation and tax measures that narrow the deficit from 4.5% of GDP in 2019/20, to 4% by 2021/22.

“The deterioration is due to low growth hurting tax revenue and the additional Eskom bailout of R59 billion over two years,” Nedbank economists said.

In the February budget, Treasury forecast GDP growth of 1.5% for 2019, then 1.7% and 2.1% for 2020 and 2021 respectively.

In its research note, Standard Bank economists said growth has been disappointing.

“Growth has since disappointed due to decimating power cuts, which cut real GDP growth to -3.1% quarter-on-quarter in the first quarter of 2019 before recovering to 3.1% quarter-on-quarter in the second quarter.

“However, monthly data so far seems to indicate that this rebound will be revised lower and that growth was likely not sustained in the third quarter,” said Standard Bank economists.

Standard Bank forecasts real GDP to come in at 0.5% for 2019 and 1.3% in 2020.

The mini-budget comes as rating agency Moody’s Investor Solutions is due to announce its rating review of South Africa.

“A downgrade is not expected but there is a possibility that the outlook could be changed to ‘negative’ from ‘stable’,” said Nedbank economists. -