What will make or break South Africa in the coming months: economists

South Africa’s new finance minister Enoch Godongwana will present his first Medium Term Budget Policy Statement (MTBPS) against the backdrop of contrasting fortunes, say economists at Nedbank.

In a research note this week the bank noted that the global environment has been highly supportive of the local mining industry, driving better-than-expected revenue collections. However, persistent electricity shortages could still dampen mining output and hurt export earnings, it said.

“Therefore, the short-term outlook for the local economy hinges significantly on the trajectory of global commodity prices and stabilising the power grid. Over the longer term, accelerated structural reforms are necessary to ensure that the economic growth rate improves.”

While lifting the embedded power generation limit to 100 MW is encouraging, progress has generally been extremely slow, the group said.

“Policies and measures are also badly needed to improve the efficiency of the transport network and other critical infrastructure. Restoring operational efficiency and the financial health of vital state-owned enterprises are paramount to boosting overall domestic activity and investment.”

Nedbank said that its forecasts show that the government must exercise considerable expenditure constraints to achieve a primary budget surplus by 2024/25.

“The public sector wage and non-essential expenditure will have to be reduced. Even if the economic growth rate improves over the MTEF period, the rapid rise of debt service costs magnifies the need to stabilise and reduce the debt burden.”


Tax collections have exceeded the estimates reflected in February’s National Budget, boosted by the stronger-than-expected economic recovery and the surge in global commodity prices, Nedbank said.

“Revenue in 2020/21 will be higher than previously estimated, with additional tax collections totalling a preliminary R37.8 billion. We expect a revenue overrun of R155.8 billion for 2021/22, principally due to sharply higher earnings in the mining sector, boosted by the strong rebound in global demand and commodity prices.”

Total revenue is forecast to be more than R350 billion above February’s projections over the Medium-Term Expenditure Framework (MTEF), the bank said.


Consolidated spending is projected to increase at a slower pace over the MTEF than was the case in recent years. “This expectation is based on the government’s objective to limit growth in consumption expenditure,” Nedbank said.

“However, we expect an average increase in spending of 2.1% per year between 2022/23 and 2024/25, more than the National Treasury’s targeted annual average of 0.7% between 2021/22 and 2023/24.”


Nedbank has revised its GDP forecasts upwards over the medium-term on the back of the revised GDP data and the boost from higher commodity prices.

“The economic recovery appears to be back on track as calm returned to areas affected by July’s social unrests, supply chains were restored relatively quickly, the third Covid wave ebbed, and the lockdown was eased.

“However, the risks to our growth forecasts remain to the downside given the country’s fragile electricity grid, the threat of new coronavirus outbreaks and an uncertain commodity price outlook.”

The substantial GDP revisions reduce the budget deficit-to-GDP and the debt-to-GDP ratios significantly, but the debt burden continues to rise at a rapid pace, it warned.

“The debt-to-GDP ratio falls by an average of 6.9 percentage points between 2021/22 and 2024/25, dropping to 68.7% in 2021/22 compared with the 80.3% projected under the old GDP series in the February 2021 budget.

“The continued rapid increase of the debt remains a significant concern. The government must, therefore, demonstrate its commitment to keeping the debt burden under control.”

Read: South Africa’s mid-term budget postponed to 11 November

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What will make or break South Africa in the coming months: economists