PRETORIA, SOUTH AFRICA – MARCH 16: Finance Minister Tito Mboweni gives the media information on the government’s interventions in various sectors of the COVID-19 departmental portfolios at DIRCO Media Center.
Phill Magakoe / Gallo Images via Getty Images
In what has been described as the most important budget statement in the history of a democratic South Africa, Finance Minister Tito Mboweni insisted that austerity is not on the government’s agenda.
While the country appears to be recovering from the economic chaos caused by the coronavirus pandemic and an existing debt crisis and structural weakness, Mboweni said his plan was to make South Africa a primary government surplus by 2024. bring back the main budget.
Despite Mboweni’s claims that it was ‘not a savings budget’, experts are not entirely convinced, and they are worried that the finance minister may have been too optimistic in his prediction for the country’s economic recovery.
Virag Forizs, Africa economist at Capital Economics, noted that despite rising expectations of revenue, further strengthened by increased taxes on alcohol, tobacco and fuel, the government does not appear to be using the headroom to water down its fiscal tightening.
“On the expenditure side, it appears to be the order of the day. Grants to finance the country’s vaccination campaign, up to 19 billion ZAR (19 billion South African rand), were lower than the Treasury’s estimates earlier, she said in a note on Wednesday.
South Africa’s fiscal position for the last financial year looks slightly rosier than expected, with government revenue expected to be 1.4% of GDP in October. Looking ahead, revenue for 2021/22 is projected to reach 1.35 trillion South African rand ($ 90.46 billion), rising to 1.52 trillion rand in 2023/24, with stronger revenue and cash balances reaching the government enable to finance the deficit reduction.
‘Dangerously overstretch’
Mboweni also announced that the government will abolish a planned tax increase of 40 billion rand, rather increase tax revenue by closing loopholes in the corporate sector and increasing the tax base. It has also allocated an extra ten billion rand for the purchase and distribution of Covid-19 vaccines over the next two years.
“We owe a lot of people a lot of money.” – Tito Mboweni, South African Minister of Finance
The annual deficits are now expected to be much lower than previously estimated over the next three years. However, gross loan debt is expected to increase from 3.95 billion rand in the current financial year to 5.2 billion rand during the 2023/24 financial year.
Mboweni stressed that despite the revenue collapse and a more optimistic fiscal position compared to the October statement, public finances were still ‘dangerously overused’.
“We owe a lot of people a lot of money,” he said. “These include foreign investors, pension funds, local and foreign banks, unit trusts, financial corporations, insurance companies, the Public Investment Corporation and ordinary South African bondholders.”
The government hopes that its structural reform agenda, which aims to “reduce barriers to entry, increase productivity and reduce the cost of doing business”, will help recalibrate the South African economy.
GDP is expected to grow by 3.3% this year after a contraction of 7.2% in 2020, according to the country’s treasury, averaging 1.9% over the next two years.
South African Health Minister Zweli Mkhize receives vaccination against Johnson and Johnson coronavirus (COVID-19) at Khayelitsha Hospital near Cape Town, South Africa, on 17 February 2021.
Gianluigi Guercia | Swimming Pool | Reuters
Forizs added that the implementation of the ruling ANC’s fiscal consolidation plans poses serious risks, with the government embroiled in a long dispute with unions over a controversial freeze price in the public sector, a key target for curbing spending.
“It will remain politically challenging to maintain spending control given the weak economic background. Indeed, data published yesterday showed that the unemployment rate rose by 32.5% in the last quarter of last year,” Forizs said, noting that the GDP growth predicted by the government. would mean that activity remains 1.8% below its pre-Covid levels in 2022.
“Against this backdrop, there remains a significant risk that the government will not be able to meet the hopes of investors, which could put the rand under pressure and increase bond yields.”
‘Union setback’
Bank of America said that the treasury has offered a best case based on stronger growth in the medium term, with the growth in South Africa over the past few years. Wage cuts in the public sector and structural reforms of the country’s troubled and debt-ridden state-owned enterprises (SOEs) will also be crucial, with analysts cautious about the outlook for all three.
“Our basic issue is that the wage freeze of R37 billion (the full year 2020) must be maintained, but accept that the inflation increases of 3-4% from (the full year 2021) are accepted,” they said in a note on Thursday .
“We see the union’s setback in the coming months with the government likely concessions amid possible strikes and local elections. SOE risks continue with overall contingent liabilities estimated at around 20% of GDP.”