SA’s fiscal arithmetic and growth outlook remain weak and vulnerable
The economic and fiscal strategies outlined in Tito Mboweni’s 2018 medium term budget policy statement (MTBPS) on 24 October 2018 are likely to have a mixed impact on business and the markets, given the constraints governing the fiscal framework.
Although facing an unenviable task, the Finance Minister nevertheless gave a realistic assessment of South Africa's socio-economic challenges and frankly identified what needs to be remedied.
Nonetheless, both the fiscal arithmetic and the growth expectations in the MTBPS have deteriorated.
This is according to renowned economist Prof Raymond Parsons from the North-West University’s (NWU’s) Business School.
“The projections for future tax revenues, government spending and debt ratios therefore show a continued vulnerable fiscal situation in the period ahead,” says Prof Parsons.
“Gross debt is anticipated to continue to rise to a peak of 59,5% of the Gross Domestic Product by 2023/24, which reflects steady deterioration in the debt outlook.”
He says it remains clear from the MTBPS that the huge costs of the economic deterioration in South Africa over the past decade and the urgency of renewed economic growth are nowhere more apparent than in government finances.
“For these there are no 'quick fix'. In any case, several outcomes from the latest MTBPS will only be apparent in the main budget in February 2019.
“On the positive side the emphasis on higher spending on infrastructure as a driver of growth, the need to mobilise the private sector on a larger scale to expedite implementation, and greater accountability at local government level are welcome.”
Prof Parsons says that, although the problem is being addressed, the MTBPS also shows that the size of the public sector wage bill continues to be a major distorting factor in trying to get the right fiscal balance.
He says the reorganisation of certain state-owned enterprises and reducing their drain on government finances is a step in the right direction, but needs to be tackled boldly.
“It will however also require other key structural reforms if the weak short-term economic recovery is to be converted into long-term growth and fiscal sustainability,” Prof Parsons adds. “Deeper and tougher decisions still lie ahead if the economy is to break out of its current 'low growth trap' and exceed the expected short term growth rates of about 1,5% to 2,0%.
“What again clearly shines through the fiscal gloom of recent years, and in the 2018 MTBPS, is the overwhelming need for a strong and sustainable boost in South Africa's flagging growth rate on the basis of significant structural reforms and their implementation.”