October MTBPS 2021
The Medium-Term Budget Policy Statement presented a further improved fiscal position, despite the global macroeconomic environment having weakened since February.
This improvement is thanks to higher than expected revenues, driven by improved tax collections, in an environment where prices in general have been steadily rising. The market had widely expected the further boost to revenue though, so the focus was mainly on how National Treasury planned to utilise the temporary windfall.
In contrast to the further improvement in fiscal metrics, the global economy has weakened progressively this year. Growth is slowing, with the IMF recently trimming their growth estimates; and if inflation remains higher for longer, then global central banks will be forced to maintain their tight monetary policy stance, risking a recession. The South African economy is therefore vulnerable and National Treasury has lowered their domestic economic growth estimate to 1.9%.
Some of the key issues which the market expected the Finance Minister to address included Eskom and the other SOE’s, social grants and whether the Social Relief of Distress grant might be made permanent, public sector wages and clarity around Gauteng’s e-toll situation. All of these featured in the Minister’s speech, which refreshingly made no mention of SAA this time around, but rather spoke to the desire to increase competitiveness and higher infrastructure spend to support future growth.
Government debt is now expected to stabilise at 71.4% of GDP in 2022/23, which is earlier and at a lower level than projected in February, and significantly lower than peak predictions a year or two ago. There appears to be a commitment to lower the debt burden and debt servicing costs by reducing annual deficits. The forecasted consolidated fiscal deficit of 4.9% of GDP for 2022/23 is expected to decline to 3.2% of GDP by 2025/26.
On the revenue front, gross tax revenue has been revised up by R83.5bn, given strong receipts from the finance and manufacturing sectors. This has allowed government to reduce the deficit and to take care of other priorities as well, most notably, reducing risks from specific SOE’s. Denel, Transnet and SANRAL will all receive additional funding, with the Government opting to take care of 70% of SANRAL’s debt, resulting from the failure of e-tolls. The Finance Minister also announced that the government plans to take over between one third and two thirds of Eskom’s R400bn debt burden.
Overall, there were no major surprises in today’s MTBPS, but the domestic growth outlook remains constrained, hamstrung by power supply, high unemployment and the weaker global growth backdrop. A credible plan to deal with contingent liabilities remains elusive, but the temporary revenue windfall has certainly been helpful in boosting fiscal metrics which were previously on an unsustainable path.
