PRETORIA, SOUTH AFRICA – MARCH 16: Finance Minister Tito Mboweni briefed the press on the details of government interventions in various sectors of the departmental portfolios on COVID-19 at DIRCO Media Center.
Phill Magakoe / Gallo Images by Getty Images
In what was considered the most crucial budget statement in the history of democratic South Africa, Finance Minister Tito Mboweni insisted that austerity is not on the government’s agenda.
While the country appears to be emerging from the economic chaos caused by the coronavirus pandemic and a pre-existing debt and structural weakness problem, Mboweni said his plan is to bring South Africa back to a primary surplus from the government’s main budget in 2024 / 25.
Despite Mboweni’s claims that this was not an “austerity budget”, experts are not fully convinced and worry that the finance minister could have been too optimistic in his prognosis for the country’s economic review.
Virag Forizs, an African economist at Capital Economics, noted that despite rising revenue expectations, further supported by higher taxes on alcohol, tobacco and fuel, the government does not appear to be using the margin to reduce its water tax tightening.
“In terms of spending, the limitation seems to be the order of the day. Allocations to fund the country’s vaccination campaign, up to ZAR19 billion (19 billion South African ranks), were below previous Treasury estimates,” she said in a statement. -a note on Wednesday.
South Africa’s fiscal position for the last financial year appears slightly higher than expected, with government revenues projected to be 1.4% of GDP higher than expected in October. In the future, revenues for 2021/22 are projected to reach 1.35 trillion South African lines ($ 90.46 billion), rising to 1.52 trillions in a row in 2023/24, with revenues and cash balances to allow the government to finance the deficit reduction.
“Dangerous to stretch”
Mboweni also announced that the government will give up a tax increase of 40 billion, instead of increasing tax revenues by closing gaps in the corporate sector and broadening the tax base. It has also allocated an additional $ 10 billion to the purchase and distribution of Covid-19 vaccines over the next two years.
“We thank a lot of people for a lot of money.” – Tito Mboweni, South African Minister of Finance
Annual deficits are now forecast to be much lower than previously estimated over the next three years. However, the gross debt of the loan is expected to increase from 3.95 trillion in a row in the current fiscal year to 5.2 trillion in a row in fiscal year 2023/24.
Mboweni stressed that, despite revenue inefficiencies and a more optimistic fiscal stance compared to the October statement, public finances are still “dangerous to expand”.
“We owe a lot of money to a lot of people,” he said. “These include foreign investors, pension funds, local and foreign banks, unit trusts, financial corporations, insurance companies, the Public Investment Corporation and ordinary South African bondholders.”
The government hopes that its structural reform agenda, which aims to “reduce barriers to entry, increase productivity and lower business costs”, will help recalibrate the South African economy.
GDP is expected to grow by 3.3% this year, following a contraction of 7.2% in 2020, averaging 1.9% over the next two years, according to the country’s treasury.
South African Health Minister Zweli Mkhize receives vaccination against coronavirus disease Johnson and Johnson (COVID-19) at Khayelitsha Hospital near Cape Town, South Africa, February 17, 2021.
Gianluigi Guercia | Swimming pool | Reuters
Forizs added that the implementation of the ANC’s fiscal consolidation plans under government faces serious risks, with the government embroiled in a long-running dispute with unions over a controversial public sector wage freeze, a key objective for limiting expenses.
“It will remain a political challenge to maintain spending constraints, given the weak economic environment. Indeed, data released yesterday showed that the unemployment rate reached 32.5% in the last quarter of last year,” Forizs said. that government-projected GDP growth would mean activity would remain 1.8% below its pre-Covid levels in 2022.
“In this context, there is a significant risk that the government will not be able to live up to investors’ expectations, which could put pressure on the government and increase bond yields.”
“Return of the Union”
Bank of America said the Treasury presented the best scenario based on stronger growth in the medium term, with persistent growth in South Africa in recent years. Public sector wage cuts and structural reforms of struggling and indebted state-owned enterprises (SOEs) will also be crucial, with analysts cautious about the outlook for all three.
“Our core case is to maintain the R37bn wage freeze (for the full year 2020), but we expect inflation-related increases of 3-4% starting with (the full year 2021),” they said in a note on Thursday.
“We see a return of unions in the coming months, with the government likely to make some concessions amid a possible strike and local elections. SOE risks persist with global contingent debt estimated at c.20% of GDP.”