Fiscal and critical policy considerations are expected to be the order of the day when Finance Minister Enoch Godongwana delivers his first Medium Term Budget Policy Statement (MTBPS) in Parliament today.
The Minister, who was appointed to the position in August, will table the policy statement amid the country’s gloomy and precarious economic position that was exacerbated by the COVID-19 pandemic. Beyond this, the country was this week experiencing its latest round of rolling power outages.
Given the prevailing economic climate, economists have crystal glazed as to what the MTBPS could contain.
Previewing today’s mini-budget in a newsletter, First National Bank (FNB) economists – Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano – said they did not expect any sign of deviation from the country’s current fiscal consolidation path.
Instead, they said the budget could highlight progress on critical policy considerations such as the Public Procurement Bill and implementation of the Zero-Based Budgeting framework.
They said: “In addition, we expect the budget to highlight progress on various options that National Treasury is considering to address the widening poverty gap, including support for the economic recovery and employment creation.
“Our view is that this MTBPS will provide detailed progress made on growth-enhancing reforms that are already contained in existing policy documents, namely the National Development Plan, Treasury’s growth strategy paper and the Economic Reconstruction and Recovery Plan.”
Additionally, the economists said the mid-term budget is expected to project a slightly stronger growth of between 4.5% and 5.4% this year.
They said this would be in line with the wide range of forecasts for South Africa’s growth.
“However, we expect negligible forecast revisions for the outer years. We also expect the time frame for the return to 2019 levels to be brought forward,” they said.
The economists argued that the policy statement should also provide details on the role that Operation Vulindlela has played to facilitate and fast-track reforms.
“The MTBPS will also emphasise public infrastructure investment (although no spending adjustments will be made at this budget), the need to improve business confidence and the importance of crowding in private sector investment (along with the Infrastructure Fund).
“More critically, the key message that this MTBPS could convey is ‘implementation, implementation, implementation’ and the need to do more to support growth and employment creation”.
In this regard, they said the budget will emphasise the necessity of urgent and accelerated implementation of growth reforms, as well as building an efficient and capable state that will work with the private sector to deliver on crucial growth measures.
Investec chief economist Annabel Bishop in a preview said she expected the MTBPS to stick to the fiscal consolidation, growth stimulatory with a move away from accelerating current expenditure.
In a note on the Bank’s prediction, she said market and credit ratings on the fiscal metrics to see if the rand value of borrowings and/or deficits rise.
The Bank expects gross loan debt would come out at 70.0% of GDP for 2020/21, versus the 80.3% of GDP projection in the February 2021 Budget (BR) before the GDP revisions.
She said: “For the current fiscal year of 2021/22 we expect a projection of 69.8% of GDP (2021 Budget prediction was 81.9%) both on the substantial growth and upwards revision in nominal GDP, with the upwards revision to the size of the economy itself creating a larger base to grow off.
For the next three medium-term years, Investec forecast was now at 73.0%, 74.5% and 75.7% of GDP. This was against the National Treasury’s original projections of 85.1%, 87.3% and 88.5% of GDP.
This, she said, may be enough to avoid sovereign credit rating downgrades from Fitch and S&P in November. The two rating agencies both currently have the country on BB- currently. Fitch continues to have a negative outlook, as does Moody’s at one notch up.
Key also will be projected expenditure increases, with a form of basic income grant likely, she said.
Investec said it was also expecting a growth of 2.5% in 2023, versus the national treasury’s prior forecast of 1.6% year-on-year, and accelerating GDP growth thereafter.
The Bank said the higher economic growth outcomes and outlook suggest that revenue collection will be higher than previously expected, which has also aided its reduction of the likely deficit projections.
It said underlying debt sustainability will see some benefit from a larger economy and a faster growing economy, but can quickly be eroded by rising expenditure.
“Expenditure pressures have risen materially this year on the additional social welfare support after the riots and the Sasria shortfall government is compensating for. In the longer-term a form of basic income grant (BIG) is likely for the high degree of jobless adults in SA, although this could be tied to a need for active job seeking,” it said. – SAnews.gov.za
