PRETORIA, SOUTH AFRICA – MARCH 16: Finance Minister Tito Mboweni briefs the media on the details of government interventions in various sectors of the departmental portfolios on COVID-19 at DIRCO Media Center.
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In the most important budget declaration in the history of a democratic South Africa, Finance Minister Tito Mboweni insisted that austerity was not on the government’s agenda.
As the country seeks to emerge from the economic chaos caused by the coronavirus pandemic and a pre-existing dilemma of debt and structural weakness, Mboweni said his plan is aimed at bringing South Africa to a primary surplus in the main government budget in 2024 traced back. 25th
Despite Mboweni’s claims that this is “not an austerity budget,” experts are not entirely convinced and fear that the finance minister may have been too optimistic in his forecast for the country’s economic overhaul.
Virag Forizs, Africa economist at Capital Economics, noted that despite increased revenue expectations supported by increased tariffs on alcohol, tobacco and fuel, the government did not appear to be using the margin to dilute its fiscal tightening.
“On the spending side, there seems to be some restraint on the agenda. Allocations to fund the country’s vaccination campaign were up to ZAR 19 billion (South African rand 19 billion) below previous Treasury estimates,” she said in a note on Wednesday.
The budget situation in South Africa for the last financial year looks a little brighter than expected. Government revenues are expected to be 1.4% of GDP higher than expected in October. Looking ahead, revenue is projected to be 1.35 trillion South African rand ($ 90.46 billion) in 2021/22 and increasing to 1.52 trillion rand in 2023/24. Stronger revenue and cash balances allow the government to fund the reduction of the deficit.
“Dangerously overstretched”
Mboweni also announced that the government will cut proposed Rand 40 billion tax hikes and instead increase tax revenues by closing gaps in the corporate sector and broadening the tax base. In addition, an additional R 10 billion was made available for the purchase and distribution of Covid-19 vaccines over the next two years.
“We owe a lot of money to a lot of people.” – Tito Mboweni, South African Minister of Finance
The annual deficits are likely to be significantly lower over the next three years than previously assumed. However, gross debt is expected to increase from R 3.95 trillion in the current fiscal year to R 5.2 trillion in fiscal 2023/24.
Mboweni stressed that despite the decline in sales and a more optimistic budget position compared to the October statement, public finances are still “dangerously overwhelmed”.
“We owe a lot of money to a lot of people,” he said. “This includes overseas investors, pension funds, local and overseas banks, mutual funds, finance companies, insurance companies, the Public Investment Corporation and ordinary South African bondholders.”
The government hopes that its structural reform agenda, which aims to “remove barriers to entry, increase productivity and reduce the cost of doing business”, will help rebalance the South African economy.
GDP is expected to grow 3.3% this year, after falling 7.2% in 2020, and averaging 1.9% over the next two years, according to the country’s Treasury Department.
South African Health Minister Zweli Mkhize will receive the vaccination against Johnson and Johnson coronavirus disease (COVID-19) on February 17, 2021 at the Khayelitsha Hospital near Cape Town, South Africa.
Gianluigi Guercia | Pool | Reuters
Forizs added that implementing the ruling ANC’s fiscal consolidation plans carries serious risks as the government is embroiled in a longstanding dispute with unions over a controversial public sector wage freeze, a major target for spending curb.
“In light of the weak economic environment, maintaining spending restraint will remain a political challenge. Data released yesterday showed that the unemployment rate reached 32.5% in the last quarter of last year,” Forizs said, noting that GDP- Growth forecast by the government would mean activity in 2022 will remain 1.8% below its pre-Covid levels.
“With that in mind, there is still a significant risk that the government will fail to live up to investor hopes, which could put pressure on the rand and spike bond yields.”
“Union Pushback”
Bank of America said the Treasury Department had presented a best-case scenario based on stronger medium-term growth, with growth in South Africa having been consistently weak in recent years. Public sector wage cuts and structural reforms to the country’s ailing and indebted state-owned enterprises (SOEs) will also be crucial, with analysts cautiously assessing the outlook for all three countries.
“Our base case is that the wage freeze (for 2020 as a whole) of R 37 billion is maintained, but an inflation-related increase of 3-4% from (full year 2021) is assumed,” said a statement on Thursday .
“We see a backlash from unions in the coming months, with the government likely to make some concessions in the face of possible strikes and local elections. SEE risks remain as contingent liabilities are estimated at around 20% of GDP.”
