“Against the background of difficult global and domestic economic circumstances Finance Minister Enoch Godongwana generally delivered a realistic and credible fiscal message in the Medium-Term Budget Policy Statement (MTBPS) today.”
In commenting on the MTBPS, Prof Raymond Parsons, economist from the Business School of the North-West University (NWU), says South Africa’s public finances have now been put on a much more sustainable basis.
He points out that both expenditure and revenue are good-news stories that help to build economic resilience.
“It is in the main Budget later in February that the overall budget ‘judgement’ will acquire much more precision. In crafting its rolling three-year spending plan the MTBPS nevertheless already had to walk a fine line among the recent heavy competing demands on the current fiscus. Despite this, the MTBPS succeeded in combining prudence with flexibility in addressing South Africa’s socioeconomic priorities within a framework of fiscal discipline.”
According to Prof Parsons, the 2022 MTBPS has offered realistic policy trade-offs in the light of the existing economic constraints. “In particular there was welcome emphasis in the MTBPS on the commitment to expanded infrastructural investment; the extension of the social relief of distress grant until 2024; and the fact that further financial assistance to state-owned enterprises like Eskom and Transnet will be hedged with strong conditionalities.”
He says it is also encouraging that greater capacity building at local government level is intended. Structural challenges require structural remedies, which include a much larger role for the private sector in finding solutions, especially in the energy and transport fields.
According to Prof Parsons, the risks to the MTBPS fiscal projections lie mainly at three levels. Firstly, that the economic growth assumptions underlying the “mini-Budget” may be too optimistic given the prevailing global and domestic headwinds. The National Treasury has also warned of downside risks to the growth forecasts. Secondly, a different outcome to the public sector wage negotiations may upset current fiscal projections. Thirdly, a failure to deliver on certain key commitments in the MTBPS would elevate policy uncertainty and dampen the prospects for job-rich growth.
“The more South Africa is seen to fix its growth problem, the more attractive it becomes for investment.”