SA Budget Preview: (2/3)

Key Touch Points: Wage Bill & Fiscal consolidation

• The key touchpoint on commitments to expenditure cuts of ~R300bn outlined in October will be the public sector wage bill, which is bringing SA closer to a fiscal cliff (estimated to be reached by March 2021). Markets will be looking closely for concrete details of how Govt plans to trim the wage bill through reprioritisation, restructuring and possible nominal wage freezes (drew extensive criticism from unions previously).
• Strongly subversive unions remain the single greatest obstacle (alongside rampant corruption) to achieving this fiscal consolidation, but a number of Govt-friendly Labour court rulings (R37bn 2018 wage deal) are starting to show signs of hope that govt will not always back down to union pressure going forward.

Deficit & Debt:GDP, less room for fiscal slippage

• The consolidated budget deficit is expected to be 13.9% of GDP for 2020/21 fiscal year (vs 15.7% forecast) 9.7% in 2022. Treasury forecasts Debt:GDP peaking at 95.3% in 2026, while credit agencies have estimated 100% by 2022/23. Debt:GDP expected to be ~80% at today's meeting.
• Debt servicing plans will also be closely monitored, with loan servicing costs becoming the largest expenditure item since 2011. Here, we may see issuance curbs or the sale of short-dated bonds.