The Finance Minister, Enoch Gondongwana, commenced by clarifying that the strategic goal is to reduce poverty, inequality and unemployment. However, South Africa’s economy has underperformed for a number of years due to the following challenges that have hampered the growth of the country:
- Unstable electricity supply
- Costly and inefficient ports
- Crime and corruption
- Weak state capacity
- High levels of market concentration and barriers to entry
Areas of interest
- On the state-owned enterprises (SOEs) front, Government is looking to take over a significant portion of Eskom’s R400 billion debt. Denel, Transnet and SANRAL have been allocated an additional R2.9, R3.4 and R23.7 billion respectively
- There are currently 12.3 million unemployed adults in the country, with many looking at the state for a solution to the problem
- Growth forecasts need to be revised due to the Russian-Ukraine war. Measures need to be taken to combat potential greylisting by the Financial Action Task Force
- Higher revenue collections are expected due to high commodity prices and a return to profitability for many large SA businesses
Key figures from this year’s mid-term budget speech
SA GDP revised down from 2.2% to 1.9%.
Spending on infrastructure such as roads, bridges, storm water systems and public buildings will increase from R66.7 billion in 2022/23 to R112.5 billion in 2025/26.
R111 billion for grants to support 2.8 million students.
The government’s offer on public wage negotiations was a 3% salary increase. This offer is in the best interest of the fiscus and public service workers.
The impact on markets
The take-out was a steady budget from a market perspective. There was a balance between being both bond and equity friendly. During the speech the rand held firm, bond yields came down across the curve and the equity market held its own. The Financials 15 index spiked and the Mid-Cap index (which is a good proxy for SA Inc) turned positive after having traded in the red for most of the day.
The earlier-than-expected stabilisation of government debt in 2022, will be positive for the bond market. Increase in government spending is positive for the equity market. Overall the speech left investors feeling more comfortable but still a little unsettled.
The economic impact
The speech was pro-growth on the economic front, supporting service delivery while firmly sticking to critical fiscal consolidation in the context of the current highly uncertain economic environment. Although there are implementation risks around the public sector wage bill, debt to GDP has stabilised earlier than expected.
Source: FNB