Despite signs of increasing stress among state-owned enterprises, Finance Minister Enoch Godongwana delivered his second Medium-term Budget Policy Statement (MTBPS) on Wednesday, calling it a “positive” document. According to News24.
The MTBPS updates Treasury’s economic forecasts, provides policy guidance, and adjusts various government department budgets ahead of the main Budget in February.
South Africa’s debt situation is improving.
Government debt has skyrocketed in recent years, rising from R577 billion in 2007/08 to R4.75 trillion this year. Because of volatile financial markets, which have raised interest rates, the cost of repaying this debt will be nearly R6 billion higher than anticipated in February.
However, tax revenue has been surprisingly high, owing primarily to high commodity prices.
Gross tax revenue in the current fiscal year is now expected to be nearly R93 billion higher than predicted in the February Budget.
This was despite a disappointing VAT take, which is expected to be nearly R5 billion lower than budget due to larger-than-expected refund payments. During the first half of the year, these refunds averaged R25.1 billion per month.
However, corporate tax is expected to be R62.8 billion higher than budget.
This year, gross loan debt is expected to stabilize at 71.4% of GDP, two years earlier and at a lower level than previously predicted. South Africa will borrow “only” R411.2 billion this year, compared to the Treasury’s earlier estimate of R484.5 billion.
E-tolls
The government will also provide R23.7 billion to the South African National Roads Agency Limited (Sanral) this year to end the decade-long dispute over electronic tolling systems (e-tolls) on Gauteng’s freeways.
The system was launched in late 2013 to fund the Gauteng Freeway Improvement Project (GFIP) through e-tolls via mobile devices and gantries. However, it was immediately rejected by several Gauteng motorists, leaving Sanral with a significant debt hole and jeopardizing its ability to raise funds through the bond market and other means.
Godongwana announced that the government will pay 70% of Sanral’s R47 billion debt, with Gauteng agreeing to pay 30%.
In essence, Gauteng must decide whether or not to continue with e-tolls.
ESKOM to be unbundled into three entities
“The biggest known risk to the economy and public finances is Eskom,” Godongwana says.
He warned that heavy load shedding is wreaking havoc on our economy.
“A lower debt burden will allow Eskom to implement a viable unbundling process and free up resources for critical electricity supply and transmission infrastructure investment.”
The government intends to assume up to two-thirds of Eskom’s R400 billion debt, but it is still negotiating the details with Eskom’s lenders.
The transfer will be subject to strict conditions, including the unbundling of Eskom into three entities, as well as more stringent cost management and bad debt resolution.
It will not provide more information about the debt transfer until next year’s Budget. Investors who were expecting clarity this week will be disappointed.
READ MORE: “Several grey areas need to be addressed in mid-term budget”
Government-imposed 3% wage increases
As wage negotiations over civil servant wage increases continue to stall, and the first strike is expected next week, the government has made no indication that it will budge.
It now intends to implement a 3% wage increase in the public sector unilaterally by invoking Section 5 of the Public Service Act.
The SRD grant has been extended until March 2024.
There has been no final decision on the permanent replacement of the SRD grant, which is currently paid to 7.4 million people. The one-year temporary grant will be extended until March 2024.
Transnet receives nearly R6 billion.
The government will pay Transnet R5.8 billion, half of which must be used to repair infrastructure damaged by the recent floods in KwaZulu-Natal, and the other half to repair and maintain freight rail locomotives.
More money for infrastructure
Treasury expects to increase infrastructure budgets over the next three years as South Africa’s debt position stabilizes. Building and other fixed structure spending is expected to nearly double from R66.7 billion in 2022/23 to R112.5 billion in 2025/26.
Sanral’s R62 billion infrastructure plan is one example, while the Passenger Rail Agency of South Africa plans to spend nearly R24 billion on rehabilitating vandalized and stolen rail infrastructure as well as new trains.
Over the next three years, the water boards will spend R27.7 billion, including R27.7 billion to upgrade pipelines in the Rand Water service area, including the Zuikerbosch system.
More funding for the police – and to avoid greylisting
Treasury has allocated an additional R8.7 billion to the Department of Police, and additional funds will be made available to the NPA, SIU, FIC, and SARS. This is “meant to reduce the risk and incidence of financial crime and corruption, as well as to avoid greylisting.”
Denel may be awarded R3.4 billion for turnaround.
Denel will receive nearly R205 million to repay urgent loans and may receive R3.4 billion if certain conditions are met to complete its turnaround plan.
Downgrade
Due to load shedding and weaker exports, the Treasury reduced South Africa’s expected economic growth rate for this year from 2.1% to 1.9%. Over the next three years, real GDP growth is expected to average only 1.6%.
The government also anticipates that most of the windfall tax receipts from higher commodity prices will be lost over the next two years, and that personal income tax receipts will be limited by the weak labor market.
Nonetheless, it expects tax revenues to rise to R2.04 trillion, or nearly 25.4% of GDP, by 2025/26, up from R1.7 trillion this year.
