Budget Speech preview: Spotlight on SA’s fragile economy

As the nation eagerly awaits Finance Minister Enoch Godongwana’s Budget Speech scheduled for Wednesday afternoon, all eyes are fixed on his plans to tackle the pressing economic challenges facing South Africa.

In a sobering assessment delivered to parliament in November 2023, Godongwana painted a grim picture of the country’s financial state.

He revealed that the government was grappling with a significant budget deficit, with expenditures surpassing earnings by a staggering R54.7-billion.

This deficit stood at 4.9% of the nation’s total earnings, exceeding the earlier estimated figure of 4%.

Against this backdrop, expectations are high for the minister to outline concrete measures to address the fiscal shortfall while prioritising support for the most vulnerable segments of society.

Social support structures

Elna Moolman, Standard Bank Group’s head of macro-economic research for South Africa, emphasised the importance of maintaining existing social support structures, which currently constitute 61% of non-interest fiscal spending.

However, she cautioned that fiscal constraints may limit the scope for expanding these programmes or introducing new spending initiatives.

Moolman highlighted the government’s commitment to supporting the economy amid a challenging global economic landscape.

Central to this effort is the ongoing structural reform process aimed at alleviating South Africa’s growth bottlenecks.

Key areas of focus include providing support to entities like Transnet to address critical infrastructure constraints, particularly in the railway and port sectors.

“This support will remain in place, and there will be some adjustments to the values of most forms of such support, but there just isn’t enough fiscal space to increase this further or to announce new spending programmes,” said Moolman.

“Treasury places a lot of emphasis on ensuring that all these funds are efficiently spent, in other words, that there is no leakage via corruption.

“The minister’s support for the economy amid a fragile and uncertain global economic backdrop will likely largely be through supporting the structural reform process under way to alleviate growth bottlenecks.

“This includes the necessary support for Transnet to address the railway and port constraints [this support has so far largely been via government guarantees for Transnet’s debt rather than outright injections].”

Spending restraint

The finance minister is expected to underscore the importance of fiscal prudence, particularly in light of the public-sector wage increases awarded in 2023.

While tax hikes are not anticipated, Moolman stressed the need for spending restraint to mitigate the impact of higher-than-budgeted wage costs.

Operation Vulindlela, a government initiative aimed at removing obstacles to higher growth, is likely to feature prominently in the Budget Speech, according to Moolman, who said the programme has already made strides in addressing electricity constraints and is expected to play a crucial role in resolving logistical challenges.

Looking ahead, ongoing funding allocations for universal healthcare are anticipated, albeit with a focus on longer-term objectives.

The rollout of social relief programmes, including the social relief of distress grant, is expected to continue, with a renewed emphasis on efficiency and effectiveness in programme design and implementation.

Infrastructure development

“We expect ongoing funding allocations to prepare for universal healthcare, but we see this as a longer-term objective, and we won’t necessarily get more clarity on the exact plans in this regard [in other words, exactly how the rollout will be scheduled].

“Ultimately, the social relief of distress grant will likely be a permanent feature, though in the coming year, the intention is likely to carefully review all social spending to ensure that the programmes are designed and implemented efficiently and effectively.”

According to Moolman, infrastructure development is set to remain a priority, with the Treasury expected to preserve allocations despite fiscal pressures.

Additionally, there may be further details on how the private sector can contribute to infrastructure projects, facilitating their rollout and upgrading.

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