Key issues to look out for in the MTBPS on Wednesday

When finance minister, Enoch Godongwana, presents the Mid-Term Budget Policy Statement (MTBPS) tomorrow afternoon, the country will be watching closely what he says about the most pressing economic issues plaguing South Africa.

The MTBPS is a government policy document that tells parliament and the nation more about the economic context that the forthcoming budget will be presented in, along with fiscal policy objectives and spending priorities over the three-year expenditure period ending in the 2025/26 fiscal year.

While people will be watching how government plans to spend their taxes on the debts of state-owned entities such as Eskom and Sanral, Social Relief of Distress (SRD) Grants, and public sector wages, economists will be watching to see if the finance minister prioritises policies that will grow the economy, address Eskom’s financial woes, and stimulate reform.

People will, of course, also be watching to see if this time there will be any news about the future of e-tolls.

The department of transport has been making many promises about when there will be a verdict on the future of e-tolls, but it has never materialised before, so South Africans will hopefully get clarity at last.

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Backdrop of worsening global economy

Nedbank notes in its preview of the MTBPS that it will be presented against the backdrop of worsening global economic conditions due to supply chain gridlocks, high commodity prices that pushed inflation to multi-decade highs and rising interest rates, as well as geopolitical disagreements.

Domestically, intense load-shedding and labour strikes persistently hinder firmer growth momentum and business confidence will remain broadly depressed as reform measures remain slow. Consumer sentiment will also be kept low by weak job prospects, the faster increase in the cost of living and higher borrowing costs, Nedbank says.

The bank emphasises the need to maintain fiscal discipline and says expenditure restraint will have to be achieved through tight controls on the public sector wage bill and social transfers.

“The economic growth forecast faces significant downside risk, which could undermine revenue growth and worsen the fiscal metrics.”

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Will the MTBPS prioritise pragmatic policies?

Maarten Ackerman, chief economist at Citadel, says it is important see if Godongwana will prioritise pragmatic policies that stimulate real business growth and job creation, instead of bowing to populist pressures that prioritise social spending but have no lasting positive impact on the country.

“It is essential to note that there was yet another revenue windfall in addition to the revenue overruns in recent years. We will need to see what the finance minister does with that. We would like to see the windfalls used productively and not just on once-off, temporary social spending that does little to nothing to drive economic growth.” 

Ackerman says how government uses – or misuses – the revenue overrun is extremely important, because our debt-to-GDP ratio is already far higher than it has been over the past decade.

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Eskom debt

George Herman, chief investment officer at Citadel, will be watching to see what happens to the Eskom issue.

“We would appreciate any guidance about the intention to de-leverage the Eskom balance sheet. I think and hope that is going to be a core focus of the 2022 MTBPS.” 

Eskom has asked government to relieve its debt balance sheet of approximately R200 billion, as it has a total debt burden of near R400 billion, which could not be serviced due to its current cashflows and liquidity problems.

The Bureau for Economic Research (BER) at Stellenbosch University says the MTBPS is likely to follow the trend of extreme global and domestic macroeconomic volatility in recent years that resulted in large adjustments to the outlook for public finances from one fiscal statement to the next.

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Public sector wage bill

Much of the extra revenue will be gobbled up by additional expenditure pressures and the BER says Treasury is set to pencil in more for the public sector wage bill. Government increased its salary increase offer to 3%, but the total offer will be notably more.

Oxford Economics Africa says it looked like government was hoping to conclude the wage negotiations ahead of the MTBPS, a speech that Godongwana would have been hoping to deliver on the front foot.

“However, unions may be sensing that the moment to squeeze government is right: successful strikes at state power utility Eskom and rail and port utility Transnet have shown that targeted strike action remains very effective.

“In the absence of an agreement and with government seemingly intent on the 3% hike, wage talks have run aground and strike action, at least by some unions, seems inevitable and the worst outcome may yet happen: a general strike.”

The revised outlay on the consolidated wage bill could be more than R20 billion more than envisaged in February.

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SRD Grant

The BER says another major issue on the expenditure front is whether Treasury provides for an extension of the R350 per month SRD grant and, if so, whether there are implicit tax increases provided in the fiscal framework to finance this.

GDP growth

Oxford Economics Africa says Treasury will likely revise down its real GDP growth forecast due to the severe infrastructural damage suffered from the devastating floods in KwaZulu-Natal earlier in 2022, while intense loadshedding and strike action hampered economic activity throughout the year.

Other SOEs

In addition, Oxford Economics Africa would like to see the minister shed some light on plans with key state-owned enterprises (SOEs). South Africa’s growth potential is severely curtailed by mismanagement and inefficiencies at most parastatals, which have compromised their financial viability.

Earlier in the year, Godongwana mentioned that certain SOEs will be preserved while others will be “rationalised or consolidated” but failed to specify which companies this will apply to.