Balanced Budget, but Reforms Nowhere to be Seen; ZAR Assets React Positively

Budget Analysis

• Overall, a solid budget from Mboweni - striking a clear balance between optimism over tax revenue windfalls (R100bn) and caution over the still-perilous fiscal trajectory. Following our expectations.
• Excessive strain on a constrained tax base avoided by using the windfall to fund vaccines and social grant extensions. Bracket creep picks up at 5% vs CPI at 3.2%, while corporate taxes reduced to 27%, but sin taxes and fuel levies increased.
• SOEs under immediate liquidity constraints given funding, but all to come from restructurings and reprioritisations - meaning no easy handouts.
• Budget deficit at 14% vs 15.7% exp and shrinking to 9.3% in 2021/22 and 7.3% in 2022/23 - which is at odds with extremely bearish forecasts from credit agencies of debt to GDP around 100% by 2022/23
• Debt servicing costs rising at 13.3%/yr reaching R338bn in 2023/4 financial year a concern going forward, as well as limited information on a reform roadmap, which is a major growth-inhibitor. However, broadly positive on the whole, given how previous budgets have panned out.
• Positivity reflected in ZAR assets with a strong immediate rally, which has pulled back slightly as markets digest the events.