MTBPS sensible, well-balanced, but exposes government’s lack of planning

The Mid-Term Budget Policy Statement (MTBPS) was sensible and well-balanced, but it is concerning that government must use a revenue overrun to narrow the deficit and mitigate lingering and new risks.

Minister of Finance Enoch Godongwana said a portion of the higher-than-anticipated revenue of R83.5 billion will be used to reduce the deficit in the current financial year and over the MTEF, infrastructure projects and critical public services such as education, health and policing and addressing fiscal risks that were previously identified in February.

These risks include higher-than-projected debt service costs, the public service wage bill and the materialisation of financial risks from some state-owned companies.   

Also Read: MTBPS in a nutshell: SOE bailouts, service delivery, economic growth front and centre

Prof. Bonke Dumisa, an independent economic analyst, called the MTBPS well balanced and pragmatic, saying: “I do not see international credit rating agencies reacting negatively to this R1.5984 trillion budget for 2022/23.”

He says the R400 billion to take over Eskom debt was unavoidable to sort out the load-shedding which is destroying the South African economy.

“Maybe the R207 billion for Denel was also unavoidable, while the R23.7 billion for Sanral seems to finally put to rest the long fights about the e-toll in Gauteng. However, this simply means we, the taxpayers, will pay for e-toll through our taxes.”

Dumisa does not think it was a good idea to base the mini budget on a 3% public service salary increase because it effectively dismisses the “reckless greedy demands of double-digit salary increases by some trade unions”.

Concern about depending on revenue over-run

Prof. Jannie Rossouw, visiting professor at the Wits Business School, says he is worried about the fact that government needs a revenue over-run to fund narrowing the deficit and mitigating risks.

“We cannot do that indefinitely,” he said and added that there was a glaring lack of no planning to mitigate the risks mentioned.

Bernard Sacks, tax partner at Mazars in South Africa, says it was a good, optimistic budget, with cautionary words thrown in with uncertainty in the markets. He noted there were a few bold projections and the question is whether or not these can be met? 

“No new taxes were announced, which is normal for this time of year. There was a number of fresh allocations to SOEs, some of which were announced. What does seem to be good news is the fair amount of infrastructure spending planned, which, in turn, will assist with stimulating the economy.” 

Garth Rossiter, chief risk officer at Lulalend, says Godongwana had to play a political game and juggle to keep all parties happy in an ANC election year and general elections coming up in 2024.

“I think he has probably done the best he can with limited scope to move.”

He says with small businesses caught in a perfect storm of low economic growth, high inflation and rising interest rates, as well as continuous load shedding, more could have been done for SMEs, but government does seem to be listening and is talking about creating a more enabling environment.

ALSO READ: E-tolls gone for good, now to tackle crime and corruption – Lesufi

SOE drain in balance sheet

Arthur Kamp, chief economist at Sanlam Investments, noticed an improving fiscal policy track record and good intent, illustrated by a projected improvement in the primary budget balance (revenue less non-interest spending) from a small deficit in 2022/23 to a significant surplus over the medium term, accompanied by a decline in the gross loan debt ratio.

However, he says the problem is the weakness of the state’s balance sheet, which continues to act as a drain on the resources of the central government.

“Additional funds are allocated in an attempt to mitigate the risks posed by Sanral, Transnet and Denel, as well as Eskom. From one perspective, it is imperative that government stabilises the financial position of Eskom, but this development is an illustration of the continued large drain of state-owned enterprises on the resources of the state.”

Kamp emphasises that South Africa’s fiscal position remains far from comfortable. 

Carmen Nel, economist and macro strategist at Matrix Fund Managers, says Godongwana painted a very positive picture of the medium-term fiscal position.

“We think there may be too much optimism embedded in these projections. This may be merely a placeholder budget, albeit on the bullish side of the risk distribution, given significant events between now and the February 2023 Budget Statement.”

She says the presentation of the current fiscal year was more realistic, but also found a few reasons for circumspection, such as Treasury expecting growth to hold up despite the current slowdown in the global economy, the revenue overrun carried forward to a large extent, the extension of the SRD grant, no reflection of the current, albeit partly, settled wage agreement and too little detail about the Eskom debt swap.

ALSO READ: MTBPS: National treasury to take on two thirds of Eskom debt

No significant rating actions following MTBPS

Oxford Economics Africa said in its response to the MTBPS that it was broadly in line with its expectations and markets will generally be satisfied.

“The improvement in South Africa’s finances, thanks to stronger than expected tax revenue, will support the Treasury’s medium-term fiscal strategy goals of achieving fiscal sustainability and stabilising government debt.”

Senior economist at Oxford Economics Africa, Jee-A van der Linde, says increasing spending on policy priorities, including security and infrastructure, with the aim of boosting economic growth is needed, but the current cost-of-living crisis means that authorities face a difficult balancing act.

“Regarding the SRD grant, government clearly recognises that a permanent outlay poses significant affordability risks, but at the same time acknowledges the need to provide extra social support. By announcing the extension of the R350 a month grant until 2024, government has effectively shelved discussions around the basic income grant (BIG).”

Van der Linde says this will add to speculation that the BIG’s implementation has been deferred to 2024, which will be an election year.

“Furthermore, the situation surrounding Eskom’s debt is not any clearer and we will have to wait until next year for further information. Finally, it is unlikely that any significant rating actions will ensue from today’s mini-Budget.”