Important decisions were rolled over to the annual budget in February but the strong commitment to fiscal discipline displayed by finance minister Enoch Godongwana in his maiden medium-term budget on Thursday will certainly boost confidence in the country.
Two issues that investors and ratings agencies watch closely both moved in the right direction, showing that we are on the right path and need to stick to it. First, the government’s consolidated deficit is expected to reach 7.8% of GDP in 2021/2022, down from February’s forecast of 9.3%, and it is expected to decline to 4.9% of GDP by 2024/2025. Second, the gross loan debt-to-GDP ratio is expected to reach 69.9% in 2021/2022 and rise to 78.1% in 2025/2026, well down from February’s forecast of 81.9% in 2021/2022 and a peak in 2025/2026 of 88.9%.
Godongwana also sent a strong message in the way he handled the extra R120bn in revenue he had to play with from the tax boost driven by high commodity prices. He used R78bn of it to repay debt, which helps us get to the improved debt trajectory outlined above. With so many demands on government revenue that is still all too scarce despite the tax windfall, he did well not to succumb to short-term pressures. Of the balance, R11bn went to state special risks insurer Sasria as a provisional allocation for risk coverage in the wake of the public violence in July, with the rest going to the presidential employment stimulus plan and the state wage bill.
His commitment to pushing through the numerous reforms required to accelerate our growth will also boost confidence in SA, reflected in the rand strengthening 1.5% after the speech.
However, what might curb enthusiasm is that much of the substance was left for the February budget. Given that the final planning was done in the thick of political campaigning for the local government elections, that’s perhaps understandable.
It was the right thing to delay committing to big new spending items, with Godongwana saying the government would wait to see how revenue comes out in February before deciding. But we believe there were issues that were low-hanging fruit — simple to implement at little cost, but each of which would provide economic stimulus.
The lack of progress on reform for the financial sector and exchange control was particularly disappointing. Measures on the table are aimed at positioning SA as a financial hub for the continent. Mauritius is proving a popular financial centre in the region and far too much business is bypassing us. But with the right policies in place we have much to offer, and the importance of this issue is magnified by the Africa Continental Free Trade Area agreement.
I was also hoping there would be more to make it easier to do business in SA. One positive element was that Godongwana said the eVisa system to stimulate the Covid-19-devastated tourism sector would be rolled out by March next year. However, reviewing the legal regime governing skilled migration will only be accelerated “over the medium term”, which seems an unnecessary delay.
For small businesses there was little to cheer. I’d like to remind the minister of his address to the Sunday Times Investment Summit in September, when he said: “We have got to make it really easy to do business.” I have no doubt that he will follow through, but it would have been nice to have found a way to give the small-business sector, which has felt the impact of the pandemic more than most, an immediate boost.
Stats SA figures show that close to 997 companies and close corporations were liquidated in the first half of this year, up from 763 in the same period in 2020. A short-term stimulus — perhaps lowering or even waiving statutory fees or other regulatory costs — would make a big difference.
With the important bits, however, Godongwana was spot on. After the positive sentiments flowing from the good work done by the well-prepared SA team at COP26 in securing green financing commitments totalling $8.5bn, his strong commitment to fiscal discipline will have investors and ratings agencies paying attention.
On behalf of Business Leadership SA (BLSA), I congratulate finance minister Godongwana for delivering a credible and disciplined first medium-term budget policy statement in parliament.
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