When finance minister Enoch Godongwana tables the first medium-term budget policy statement (MTBPS) for the government of national unity on Wednesday, he will have to chart a course that is consistent with February’s budget speech.
However, a number of interests, including civil society groups, will await clarity on their demands as various sectors of society scramble to be at the top of the pecking order of the GNU's fiscal priorities.
While investors and businesses want to see developments in energy, logistics and water infrastructure, households and civil society are calling for relief from years of sustained living costs.
Moves such as the drawdowns from the Gold and Foreign Exchange Contingency Reserve Account to ease the pressure of debt servicing costs and the marginal taxes on the gross lump sum payment of more than R21.4bn worth of two-pot system withdrawals since the system was introduced in September will create some wiggle room.
Get the goodness going
The investor community and the private sector are eager to see if minister Godongwana will outline the modalities and approach that the GNU will take towards stimulating the economy following gains in the network industries thanks to Operation Vulindlela.
South Africa has had months without load-shedding and marginal improvements have been noted in the freight, rail and logistics bottlenecks that Transnet has been grappling with.
Still, government goals such as the development of new renewable energy projects, the development of 14,000km of transmission lines and freight rail infrastructure will have the private sector listening to the address with keen interest.
TPN from MRI Software marketing director Waldo Marcus said service delivery, infrastructure development and maintenance are crucial as inefficient expenditure to maintain the infrastructure and a lack of skills could result in initiatives failing to deliver in the long term.
“The impact of Eskom’s past failures continues to be felt in various sectors, including property, as significant private investments were necessary to keep the lights on, which detracted from the expansion and growth of property and fixed assets. Since the operational recovery of Eskom, property investors have been directing funds towards water security.”
Standard Bank Group head of South Africa Macroeconomic Research Elna Moolman said with a steady fiscal prognosis, she expected considerable emphasis in the MTBPS on South Africa's fundamental macroeconomic policy direction, in particular the policy reforms driven by Operation Vulindlela.
“We expect Operation Vulindlela’s priorities to focus largely on the same network industries such as electricity and logistics infrastructure and economic growth bottlenecks as this unit’s first term, possibly with the addition of interventions to improve the functioning of local governments and spatial policies.”
High hopes and big expectations
Group chief economist at Old Mutual Johann Els said there was cautious optimism about the country's economic trajectory thanks to recent shifts in fiscal strategy, ongoing reforms and an improved political landscape.
“These improvements indicate a stabilising debt trajectory, which we hope will prompt ratings agencies to adjust their outlook on South Africa from ‘stable’ to ‘positive’ within the next six to 12 months,” said Els.
He added that the National Treasury’s goal of building primary budget surpluses was firmly on track and would create a foundation for lower debt issuance in the near future, a shift that will alleviate some of the pressures on national debt-servicing costs.
“Every one percentage point reduction in interest rates lowers interest costs by approximately R7bn-R8bn and reduces debt by R12bn-R14bn.”
PwC South Africa chief economist Lullu Krugel said global financial market sentiments have been notably more favourable towards South Africa since the formation of the GNU which has continued to strongly drive economic reforms from the previous administration.
“Asset appraisals have shown positive momentum in recent months on the back of growing optimism of what the multiparty government could mean for the economy. As such, the outlook for companies whose earnings are predominantly linked to the South African economy has improved significantly over the past several months.”
Investment analyst for fixed income at Anchor Capital Casey Sprake said the 2024 MTBPS was being presented amid a moderately improved economic outlook and is expected to reaffirm a commitment to prudent fiscal policy aimed at stabilising debt.
“Total main budget revenue, including non-tax revenue and adjusted for National Treasury’s classification of net Gold and Foreign Exchange Contingency Reserve Account receipts as revenue, is up 3.6% year-on-year in the first five months, against a full-year target of a 5.4% increase.”
However, Sprake said, tax revenue has grown by only 4.3% year-on-year, below the 7% year-on-year growth target, VAT is underperforming, and corporate tax revenue declined by 2.2% year-on-year due to the challenging economic conditions faced by households and businesses.
Civil strain
Civil society groups representing unionised workers, grant recipients and low-income earners are calling for Godongwana to provide relief interventions following the cost of living crisis.
Civil society groups sent an open letter to President Cyril Ramaphosa this week asking that this week’s MTBPS consider the interests of broader society, which was still buckling from the cost of living crisis.
The ANC-aligned labour federation, Cosatu, urged the government to table a progressive MTBPS to address the economy’s “sluggish” 1% growth rate, rising unemployment, entrenched levels of poverty, and inequality.
Meanwhile, Saftu secretary-general Zwelinzima Vavi announced that the labour federation would march against what he called an “austerity-driven budget” from the national government.
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