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Budget Review: Cautious Optimism, But Growth Risks Remain

SOUTH AFRICA
  • Overall, a cautiously optimistic budget from Godongwana, with firm promises to stick to the fiscal consolidation narrative – although, slightly less evidence of concrete follow through on implementation than hoped (as we have come to expect in SA).
  • Revenue windfalls amounting to R182bn (50% above MTBPS forecast) will be used to trim debt servicing costs and fund expenditure over resorting to taxation in the major categories (VAT & personal income), while increases were levied on sin tax items. Corporate taxes were also reduced to 27% from 28% - “now is not the time to increase taxes and put the recovery at risk.”
  • SA’s budget deficit is expected to fall to 4.2% of GDP by 2025 from 5.7% in 2022/23 – slightly more optimistic than most forecast. Debt:GDP will also peak at 75.1% vs 76-77% expected.
  • Growth was more moderate with an average 1.8% growth rate over the next three years - well short of the 3% needed to address rampant unemployment. However, 2022 growth was revised higher to 2.1% vs 1.8% exp.
  • Forecasts exceeded expectations for the most part, however, and policy appears to be geared towards business, investment and growth-friendly trajectory with measures to support consumption and youth employment (R18.4bn), such as tax relief and SRD extensions (R44bn). Godongwana said red tape would be cut for businesses, but failed to provide details.
  • Risks emanate from public sector wage bill negotiations (March 22) and Eskom, which received very little attention at this meeting – other than to discuss its “distressed” state.
  • Wage increases for the public sector were pencilled in at 1.8%, which should make for difficult negotiations with Unions and is the primary risk to the fiscal consolidation narrative. Debt servicing remains the thorn in SA’s side at R301bn and is set to continue to create a drag in a tightening external environment in 2022.
  • Highlights Document:http://www.treasury.gov.za/documents/national%20bu...
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
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MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
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