GNU's maiden budget policy: balancing growth and fiscal prudence - BER
The first Medium-Term Budget Policy Statement (MTBPS) under the Government of National Unity (GNU) reflects a delicate balance between fiscal discipline and socio-economic pressures, according to the Bureau for Economic Research (BER)
Lisette IJssel de Schepper, the chief economist at BER, said at first glance, the better macroeconomic outlook is at odds with a worsening fiscal picture, with a higher budget deficit, smaller primary surplus and slightly worse debt-to-GDP ratio projection compared to the February 2024 Budget.
“The Treasury is dubbing this MTBPS as a “pro-growth agenda”, which is reflected in their expectations for accelerating economic growth throughout their forecast period. Even though the fiscal metric looks “worse” than a few months ago, they still move in the right direction over the next three years. This largely reflects the trade-off that the Treasury has made for higher spending in the near term (with lower revenue) that will enhance fiscal outcomes in the medium- to long term.
“Against a backdrop of moderate growth forecasts (that remain below 2% over the next three years) and heightened debt levels, the MTBPS seeks to build confidence domestically and among international investors while navigating South Africa's pressing economic and social needs,” De Schepper said.
Delivering this speech yesterday, Finance Minister Enoch Godongwana said the recent elections demonstrated the resilience and maturity of South Africa’s young democracy.
He said the formation of a government of national unity in June, combined with the suspension of power cuts since March 2024, a leap in business and consumer confidence, and the receding of inflation in recent months, have raised all of hopes.
“Ours is to turn the promise of a better life for all into a reality. His Excellency, Mr President, outlined the three priorities of the government of national unity. These are: to drive inclusive growth and job creation; to reduce poverty and tackle the high cost of living; and to build a capable, ethical and developmental state,Godongwana said.
He said that fittingly, inclusive economic growth is at the centre of the work of the government of national unity and at the top of the national agenda. This policy statement analyses the trade-offs and choices that the nation is confronted with, charting the path toward growth, transformation and action he said.
De Schepper said the MTBPS aimed to reinforce fiscal responsibility and strengthen investor confidence while supporting structural reforms. This was done in an environment with many unknowns, including in the near term, the outcome of the public sector wage bill negotiations and the quantum of revenue collected from individuals withdrawing from the two-pot system.
“However, the MTBPS may not instil confidence when you look at the initial numbers, and many questions are left unanswered (although not unexpectedly so). This includes certainty around the continuance of the SRD grant (or some form of a basic income grant), and the possible metrics that are being considered as a fiscal anchor. Details around both of these issues are promised in upcoming papers to be released in March 2025, which will likely be after the 2025 Budget. This implies more kicking of the can down the road in the upcoming Budget.”
BER said with that said, the document contains many positives, such as an upward revision(and increasing trend) in GDP growth over the next three years, which implies more confidence in structural reforms taking hold.
“The focus on strengthening partnerships with the private sector, particularly in infrastructure, as well as implementing reforms to strengthen the investment system from planning through to execution is a positive development, especially for the longer term. The Treasury has rightly focused on the medium term (in other words, the next three years) as is possible in the MTBPS. However, what we do not see in the initially disappointing headline numbers are the reforms and subtle messaging contained in some of their projections, which signal better economic outcomes over the longer term (that are not published).”
Christie Viljoen, the PwC South Africa lead economist for Macro Analysis, said the budget speech showed the same kind of fiscal prudence that has been seen from this finance minister in previous speeches.
“However, many South Africans would have hoped to see comments about things that could positively impact their household financial situation, including reviews of the zero-VAT list and fuel price calculations as well as any news on a basic income grant. This puts pressure on the minister to speak to these issues in February with the main budget. The GNU has committed to look into the cost of living in the country and needs to deliver on this process in the short term,” Viljoen said.
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