Godongwana’s MTBPS2022 contains promising signs of a fiscal turnaround, but sustaining these gains will be tough in the absence of faster growth, writes ClaireBisseker.
Despite the bleak global economic outlook, the National Treasury has produced a progressive and pro-growth medium-term budget that both spends and saves much more than expected — while still coming out way ahead of its debt reduction targets.
If only the risks on the spending side weren’t so high, it might even have been believable. But, as ever, the fiscal framework faces a credibility problem because of the Treasury’s inability to budget accurately for the big spending risks that are coming down the line. It’s not finance minister Enoch Godongwana’s fault that the political trade-offs and complex technical decisions have yet to be taken by other parts of government, but it does make it hard to take the medium-term budget at face value and to celebrate the good news it contains.
But ongoing expenditure restraint has also played a role in South Africa’s fiscal turnaround. This pattern is set to continue, with Godongwana budgeting to save 65% of the revenue windfall this year, 45% of the carry-through into next year and 37% in 2024/2025. At the risk of mixing our metaphors, the once gaping “jaws of the hippo” — the term for the gap between revenue and expenditure coined by former finance minister Tito Mboweni — will snap shut next year, placing the public finances on a gentle glide path back to sustainability in which the debt ratio arcs like the back of a humpback whale.
While seasoned economists are having a hard time accepting the plausibility of this forecast, Treasury deputy director-general Duncan Pieterse says he is “pretty confident” that South Africa will achieve it, arguing that the Treasury’s growth and revenue forecasts are “quite conservative”, and the framework is sensitive to the fact that we’re entering a “very difficult” global period.
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