Finance Minister Enoch Godongwana will need to focus on policies that accelerate real economic growth and address the financial future of state-owned enterprises (SOEs) when he tables his Medium-Term Budget Policy Statement (MTBPS) on October 26.
This is the view of investors and economists as Godongwana prepares to inform the country how he plans to sail the economy out of stormy waters amid the rising cost of living and subdued growth.
The local economy has faced a number of headwinds over the past three quarters. These include the Russia-Ukraine war, which caused inflation to surge to a 13-year high; floods in KwaZulu-Natal that disrupted manufacturing activity; Eskom’s rolling power cuts, which severely curtailed business activities; and, industrial action at Transnet that has hampered export volumes.
And the year is not yet over.
Analysts from wealth management specialist Citadel on Friday said Godongwana should use the MTBPS to win back investor confidence.
Its chief economist, Maarten Ackerman, said Godongwana should prioritise pragmatic policies that stimulate real business growth and job creation.
Ackerman said Godonwana should not bow to populist pressures that prioritise social spending but have no lasting positive impact on the country, such as the Basic Income Grant.
“South Africa is still stuck in a balancing act between weak growth and populist needs that will continue indefinitely, such as the Basic Income Grant,” Ackerman said.
“As a country it is vital that South Africa gets the economy going to address poverty and inequality in a sustainable way.”
Civil society has been pressuring government to implement a Basic Income Grant of R1 500 a month for all unemployed between the ages of 18 and 59 to bring relief to millions of unemployed people, as the jobless rate remains among the world’s highest at 33.9%.
But with the shrinking tax base due to rising joblessness, this policy proposal has met with staunch resistance from business.
Godongwana will have to indicate whether the government can fund this more than R20 billion grant with an expected revenue windfall, in addition to revenue overruns in recent years.
“We’d like to see the windfalls being used productively – not just on once-off, temporary social spending that does little-to-nothing to drive economic growth,” Ackerman said.
From an investment perspective, Citadel’s chief investment officer George Herman urged Godongwana to address the Eskom debt situation as it continues to be a burden on the fiscus.
Eskom has requested that government relieve its debt balance sheet of about R200bn, as it is carrying a total debt burden of near R400bn.
The struggling power utility expects to receive R20bn tranches of taxpayers’ money over the next few years to deal with its debt-servicing commitments.
Godongwana has in the past said that South Africa’s SOEs need to be self-financing.
“We would appreciate any guidance the finance minister can give in terms of 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,” Herman said.
Speaking at the 25th anniversary of the SA Revenue Service (Sars) on Friday, Godongwana reiterated the importance of sticking to fiscal prudence in spite of revenue overruns.
“A big part of our fiscal strategy of repairing the public finances – and placing them on a sustainable path that will create the platform for faster economic growth – relies on an effective revenue collection arm,” he said.
Revenue collections were already higher than anticipated in the first quarter, as the economy outperformed in real terms at the start of the year on the commodity boom.
However, expenditure pressures have risen this year, which could raise the country’s debt of more than R4 trillion even higher.
Investec chief economist Annabel Bishop said strong tax receipts earlier in the year were expected to lift revenues and aid some fiscal consolidation, along with high inflation rates.
Bishop said there were no credit ratings downgrades expected this year, but rating agencies will worry about the growth outlook, particularly as SOEs fail to support demand for their services in full.
“While state finances have improved somewhat on the comparative basis against GDP, the improvement can be easily overrode by increasing state borrowing, which should not be used to fund SOE operations,” Bishop said.
“While borrowings should be used for fixed investment, and current expenditure be met with revenue, the purpose of fixed investment is also to yield a return and prove self-financing in the longer-term.”
BUSINESS REPORT