It is sometimes seen as the mini- or medium-term budget — just an update of where we are — but so constrained are the government’s finances at present that Finance Ministers Tito Mboweni’s medium-term budget policy statement on Wednesday will be watched like it is the main event.
This is not least because credit rating agency Moody’s, which maintains South Africa at investment grade, will two days later issue its verdict on whether the South Africa will be downgraded to junk.
The government will be hoping that the announcement of a fix for Eskom’s finances and the long-awaited appointment of new chief executive for the utility will ward off a credit downgrade.
Intellidex’s Peter Attard Montalto predicted the Eskom announcement will be the most important part of the finance minister’s medium-term budget policy statement — “an appendix stuffed at the back”, he said. He suggested the statement will be light on detail regarding the national power utility, given that Eskom’s chief restructuring officer, Freeman Nomvalo, has gone somewhat “rogue”— with treasury appointing Deloitte to advise it on debt solutions.
Montalto said the full R13-billion contingency reserve is being spent this year; R11-billion on the bailout of state-owned enterprises (excluding Eskom) and the remainder to partly offset the revenue shortfall.
“We then see the contingency reserves for the coming years largely staying unchanged given the risk of further SoE [state-owned entities] bailouts. As such, we see the reserves staying around or only just below R6-billion a year”.
Investec economist Lara Hodes said the R59-billion bailout of eskom by the treasury will push the debt-to-gross domestic product (GDP) ratio from 56.2% to about 60%. “The extra funds required to keep this essential entity afloat, coupled with extensive debt-servicing costs, will continue to be a significant burden on expenditure in the medium term,” she said.
South Africa’s GDP contracted 3.2% in the first quarter and increased 3.1% in the second. The economy is now growing at 0.9% on an annual basis.
Hodes said lower growth means the treasury will likely lower its GDP growth projection of 1.5% for 2019 as published in the 2019 budget, bringing it closer to the South African Reserve Bank and International Monetary Fund’s projections of 0.6% and 0.7%, respectively.
Mike Teuchert, taxation head at Mazars, predicts that Mboweni will talk more about his economic stimulus plan, as detailed in his Economic Transformation, Inclusive Growth and Competitiveness: Towards an Economic Strategy for South Africa document, which was released in August. The plan aims to raise the country’s sluggish GDP growth rate to as much as 3% a year and create one million new jobs through the implementation of various economic and labour reforms.
“Mention of this plan is almost a certainty, but hopefully this will encompass a clear and practical strategy for facilitating real economic growth in the coming months. It may also foreshadow some of the possible decisions that are going to come out of the ANC’s national executive committee, based on the recent representations that Mboweni has made to the council,” Teuchert said.
The medium-term budget policy statement is an update to the budget tabled in February, updating the government’s tax and spending plans. It sets out the government’s priorities for the next three years and sets departmental, provincial and local government allocations.
Tshegofatso Mathe is an Adamela Trust business reporter at the Mail & Guardian