Sanisha Packirisamy, Chief Economist at Momentum Investments Group shares five of the fiscal pressure points that she expects the medium-term budget policy statement (MTBPS), to be tabled on 30 October 2024 by Finance Minister Enoch Godongwana, to focus on.

Highlights‍

• The establishment of the Government of National Unity (GNU) has created a framework for enhanced political stability, fiscal responsibility and renewed optimism regarding economic reforms in South Africa (SA). Since the last economic forecast update by National Treasury (Treasury) in February 2024, growth in the medium-term is likely to be adjusted higher on the back of an improvement in SA’s network industries (electricity, in particular) and early pension withdrawals related to the two-pot retirement reforms.
• Despite displaying one of the sharpest rates of deterioration in the debt-to-gross domestic product (GDP) profile, Treasury’s February 2024 estimates highlight a faster anticipated contraction in the SA government’s budget deficit ratio and an earlier stabilisation in the debt ratio relative to developed market and emerging market composites.
• We expect the medium-term budget policy statement (MTBPS), to be tabled on 30 October 2024 by Finance Minister Enoch Godongwana, to focus on five fiscal pressure points:
• Pressure Point #1: Picture beyond the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) profits: We expect the MTBPS to follow the trajectory set out by the 2024 national budget in February, reinforcing the goal of achieving primary budget surpluses to stabilise SA’s debt-to-GDP ratio. Current tax revenue trends suggest a potential shortfall of between R10 billion and R20 billion, while expenditure is likely to remain close to or slightly below Treasury’s February 2024 forecasts.
• Pressure Point #2: Public pay packet pressures on a pinched purse: Budget cuts have already led to vacancies in critical roles in sectors including healthcare, exacerbating the decline in service delivery as the government strives to contain the public sector wage bill.
• Pressure Point #3: Propping up public entities with persistent financial pressures: Transnet’s ability to invest in expansion is hampered by limited cash flow, rising debt servicing costs on a R130 billion debt pile and a steep debt maturity schedule, leaving most of its spending focused on maintenance, rather than expansion.
• Pressure Point #4: Potential financing pathways for plugging the budget gap: Fiscal performance is expected to largely align with the February 2024 budget estimates, and the R100 billion in GFECRA cash has alleviated funding pressure, so we do not anticipate any major changes in domestic issuance in the near term.
• Pressure Point #5: Prospective risks to the sovereign rating prognosis: The prospect of fiscal consolidation under the GNU, coupled with ongoing reform efforts in SA, could be sufficient to shift the neutral/stable outlook on the country’s sovereign rating to positive in the first half of next year. However, a formal upgrade is unlikely to be seriously considered until late 2025 or early 2026, as rating agencies typically require a proven track record of reform implementation and clear evidence that these efforts are driving sustained growth.