Economists at the Bureau for Economic Research say that South Africa is being pummeled from three fronts this year so far – with lower tax collections, higher government spending, and rising debt costs due to high interest rates putting the economy under severe pressure.<\/p>\n\n\n\n
Commenting on a week of intense economic data, the BER said that season fluctuations in August – which showed an improvement in some aspects – cannot hide the bleak longer-term outlook for the economy.<\/p>\n\n\n\n
According to the SA Revenue Service (SARS), South Africa recorded a bigger-than-expected preliminary
trade surplus of R13.3 billion in August – however, the BER said this was lower than the downwardly revised surplus of R15.4 billion in July. <\/p>\n\n\n\n
On a monthly basis, exports rose by R7.8 billion (4.5%), led by increased shipments of base metals (+14% m-o-m) and mineral products (+10% m-o-m). <\/p>\n\n\n\n
The value of imports also increased relative to July and was up by R10 billion (6.3% m-o-m). This was mainly due to notably higher purchases of chemical products, original equipment components, wood pulp and paper products (all three categories rising by 22% m-o-m) and vehicles (+19% m-o-m). <\/p>\n\n\n\n
“While the year-to-date (January to August) preliminary trade balance sits at a reasonable R32 billion surplus, it is substantially lower than the R160.5 billion surplus in the same period last year,” the economists said.<\/p>\n\n\n\n
In line with other expectations, data from the National Treasury showed that SSouth Africa’s monthly budget balance improved to a deficit of R47.3 billion in August, from a R143.8 billion deficit the month prior.<\/p>\n\n\n\n
“However, this was a slight deterioration compared to a deficit of R42.6 billion in August 2022. While
the monthly data is influenced by a fair amount of seasonality, the fiscal year-to-date figures
remain of concern,” the BER said.<\/p>\n\n\n\n
The data for April to August 2023 show that gross tax revenue increased by only 2.5% y-o-y – this, compared to an expectation in the February budget that gross tax revenue would increase by 5.6% for the entire 2023\/24 fiscal year.<\/p>\n\n\n\n
“If the current underperformance of tax receipts is maintained through the entire fiscal year, it would mean a tax revenue shortfall of R53 billion relative to budget expectations,” the BER said.<\/p>\n\n\n\n
At the same time, main budget expenditure surged by 9.1% y-o-y in the April-August period against the February budget, which had pencilled in expenditure growth of 1.5% for the entire 2023\/24 fiscal year.<\/p>\n\n\n\n
“The fiscal accounts are being hit on three fronts<\/strong>: lower tax revenue, higher expenditure, and rising debt-service costs amid higher long-term global and domestic interest rates,” the BER said.<\/p>\n\n\n\n On the interest rate front, the BER added that the impact of the current rates – which remains in restrictive territory following a hold by the Reserve Bank in September – is being felt in South Africa’s job sector, where businesses remain under pressure due to prevailing economic conditions.<\/p>\n\n\n\n Economists and analysts have also taken a slightly more bearish stance on interest rates, giving the hawkish sentiment coming from the SARB and the overall high-risk environment leading up to the 2024 elections.<\/p>\n\n\n\n Previously, there was an expectation that the Reserve Bank would hold on rates until early 2024 before starting a cutting cycle. However, analysts have pushed this start date back, likely only in the year’s second half.<\/p>\n\n\n\n This means that interest rates will remain restrictive for longer, adding South Africa to the list of countries that are maintaining a high-interest-rate environment.<\/p>\n\n\n\n
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