If the elevated fiscal risks outlined in the Budget speech on 22 February 2023 were to materialise, the South African economy could well drift into a recession later this year, said a panel of experts in discussing the Budget in an NWU Business School Pitso today. Questions put to the panel were whether the 2023 Budget responded adequately to a highly unfavourable global and domestic economic environment, whether the Budget strategy could generate a fiscal offset to current economic challenges, and what fiscal risks still faced the economy and the country’s public finances.
On the topic of whether the Budget effectively responded to South Africa’s current economic challenges, Ms Annabel Bishop, Investec’s chief economist, said that it was a better-than-expected Budget, with a positive reaction in financial markets. Mr Isaah Mhlanga, RMB’s chief economist, agreed that it was valuable to now have details of a solution to Eskom’s debt problems. Mr Dawie Roodt, Efficient Group’s chief economist, was somewhat less optimistic about the Budget, saying that he doubted whether the projected economic growth would materialise. He stated that the financial package for Eskom, and conditions attached, could be seen as “backdoor privatisation” of the SOE.
Ms Bishop commented that, although the Treasury would now have oversight over Eskom, coordination and implementation might be problematic. The government habitually implemented multiple layers of bureaucracy to address major issues. From a management perspective, these layers were unnecessary and merely complicated the system. Failure to deal with this expeditiously would negatively impact on investment and economic growth. Asked whether the change in addressing the Eskom situation was irreversible, Mr Mhlanga believed that only time would tell. In terms of meeting the prescribed conditions for debt relief, Eskom had repeatedly failed to do so in the past.
In view of the possibility of South Africa being “greylisted” this week, the panel discussed the impact it would have on the markets and economic growth. Whereas Mr Mhlanga felt that greylisting was already anticipated and had been priced in by the markets, Mr Roodt thought otherwise. He felt that, practically speaking, it could lead to more burdensome queries from national and international financial institutions, which could adversely affect trade and capital flows. Ms Bishop added that action to eventually remedy the expected greylisting situation was required sooner rather than later. She hoped that the reshuffling of the Cabinet that was expected soon would yield a positive outcome in this regard.
Finally, in terms of possible looming fiscal risks to the economic outlook, the panellists felt that the current electricity crisis had the potential to trigger a recession, which would pose severe risks to tax revenue and public debt/GDP ratios. Mr Roodt concluded that the current risks were not just fiscal but also political. With an election pending in 2024, there was the danger that fiscal policy would reflect intensified political considerations.
