The Minister of Finance, Enoch Godongwana, will table the Medium-Term Budget Policy Statement in Parliament on Wednesday, 26 October 2022. Citadel’s investment and economic analysts hope to see the finance minister prioritise policies that grow the economy, address Eskom’s financial woes and stimulate reform.
When South Africa’s Finance Minister, Enoch Godongwana, delivers his Medium-Term Budget Policy Statement (MTBPS) on 26 October 2022, he will need to focus on policies that accelerate real economic growth and address the financial future of Eskom, says wealth management specialists at Citadel.
THE BALANCING ACT BETWEEN AID AND GROWTH
Maarten Ackerman, Chief Economist at Citadel, says all eyes will be on Godongwana to see if he will prioritise pragmatic policies that stimulate real business growth and job creation, instead of bowing to populist pressures that prioritise social spending but have no lasting positive impact on the country.
“South Africa is still stuck in a balancing act between weak growth and populist needs that will continue indefinitely, such as the Basic Income Grant, says Ackerman. As a country it is vital that South Africa gets the economy going to address poverty and inequality in a sustainable way.
“In terms of South Africa’s macro-economic outlook, it’s essential to note that there was yet another revenue windfall in addition to the revenue overruns in recent years. So, we’ll need to see what the finance minister does with that. We’d like to see the windfalls being used productively – not just on once off, temporary social spending that does little to nothing to drive economic growth,” adds Ackerman.
TIME TO TACKLE ESKOM FOR INVESTOR CONFIDENCE
From an investment perspective, Citadel’s Chief Investment Officer, George Herman, urges Godongwana to address the Eskom situation. “We would appreciate any guidance the finance minister can give in terms of the intention to de-leverage the Eskom balance sheet. I think and hope that is going to be a core focus of the 2022 MTBPS,” says Herman.
Eskom has requested that the government relieve its debt balance sheet of approximately
R200 billion, while recently informing the Standing Committee on Public Accounts that it was carrying a total debt burden of near R400 billion, which could not be serviced due to its current cashflows and liquidity problems. It was also facing outstanding municipal debt to the tune of around R40 billion.
It was recently reported that Eskom expects to receive tranches of R20 billion of taxpayers’ money over the next few years to deal with its debt-servicing commitments, much to the dismay of taxpayers who are already paying for a service they are not fully receiving as a result of the rolling blackouts, which have recently escalated.
FISCAL REFORM IS STILL NEEDED
“Lastly, we hope there will be a proper update on the fiscal reform that’s in the pipeline and whether tangible progress is being made,” says Ackerman.
“In terms of SA’s debt-to-GDP ratio, how they use – or misuse – the revenue overrun is extremely important, because our debt-to-GDP ratio is already far higher than it’s been over the past decade. The deficit also poses a risk, so the fact that we are seeing slightly better numbers doesn’t mean the difficulties are behind us. If anything goes belly up, we’ll be close to the fiscal cliff again that Minister Tito Mboweni warned us about,” says Ackerman.
In 2021, Citadel also expressed the hope that the minister would be prudent and use the opportunity presented by additional revenue to get the country out of its “very tight fiscal position”. At the time Ackerman said: “If we don’t get the economy going very soon, we might have some further fiscal challenges in the next two to three years.” Today, fiscal reform is still a great priority.