Good news around the corner for South Africa

The upcoming Medium-Term Budget Policy Statement (MTBPS) could have good news for the direction of the South African economy.

Finance Minister Enoch Godongwana will deliver the MTBPS on Wednesday, 30 October.

Citadel Chief Economist Maarten Ackerman said the improved political and energy stability could usher in some good tidings for weary South African consumers.

“Compared to the February budget, I do think that there is room for higher growth estimates, thanks to improved political stability following the formation of the new GNU as well as greater electricity production and less load shedding, and the recent interest rate cuts, which should bring some consumer relief,” said Ackerman.

“We’re also happy to see some investment spending to address the country’s infrastructure issues.”

“Another factor that could have stimulated more economic growth since the elections is the emergence of a ‘more business-focused GNU’.

“As a result of that, the government is now in a position not only to focus on the populist checklist but to stick to fiscal austerity and get growth on track and the economy going”.

Citadel’s team sees economic growth rising to 1.5% plus over the next year, which would improve on the 0.7% seen in 2023 and the expected 1.0% for 2024.

Citadel’s 2025 prediction is still lower than Investec’s 1.7% and the Bureau for Economic Research’s 2.2%.

“If the economy strengthens, it implies that tax revenue can also increase,” said Ackerman.

“One, however, needs to consider that in the year to date, revenue collection came under pressure, and the South African Revenue Service (SARS) did not collect as much as the Treasury had budgeted for in February.”

“Lower revenue is one piece of potentially negative news we can expect to come out of the medium-term budget.”

Opening the vault

Ackerman added that the R100 billion worth of gold and foreign exchange reserves that entered the South African monetary system following the monetisation of the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) in February relieved some of the Treasury’s funding pressures.

That said, the windfall will not last much longer.

“Once this injection dries up, we will have to rein in once again on the expense side, particularly in terms of cuts in government spending on items such as the public sector wage bill.”

Ackerman said that the stronger rand reduced the GFECRA account and the government’s ability to access it.

“If we look at the limited boost we can get from GFECRA and other factors, the elephant in the room is still the wage bill, which is always a significant part of the budget.”

Public servants recently asked for a 12% pay increase, but the government countered this with a 3% offer.

“It is one of the crucial factors that one needs to address in the budget going forward if we are to consider or be able to get any rating upgrade from any of the rating agencies,” Ackerman said in reference to South Africa’s sovereign credit rating.

Read: Ramaphosa refuses to sign two new laws for South Africa