Below is a brief synopsis of the economic outlook as presented at the Medium-Term Budget Policy Statement (MTBPS).

• Household consumption has improved but has not fully recovered from the pandemic. Inflation is contained within the target band, despite upward pressure from food and energy prices. Gross fixed-capital investment remains well below pre-pandemic levels. The labour market is weak, with unemployment at 34.4 percent
• Government has made progress on a few key reforms:
  • In the energy sector, private-sector power producers will be able to sell electricity directly to consumers and municipalities can generate their own power or procure electricity from independent producers
  • The Transnet National Ports Authority has been corporatized, which will improve incentives for efficiency and competitiveness
  • The eVisa system will be rolled out to 15 countries by March 2022

A highly disciplined fiscal policy is to be maintained if we are to enjoy economic growth and stability in the medium to long term. Below are some key points extracted from the Medium-Term Budget Policy Statement (MTBPS):

• The revenue windfall will partially support increased allocations for urgent social and economic priorities, increasing non-interest expenditure. Government will maintain such allocations should revenue performance improve over the medium term
• The consolidated budget deficit will measure 7.8 percent of GDP in 2021/22 and narrow to 4.9 per cent in 2024/25, the first year since 2008/09 in which government expects revenue to exceed non-interest spending. Gross debt is expected to stabilise in 2025/26 at 78.1 per cent of GDP
• The fiscal outlook is highly uncertain. Major risks include the durability of the economic recovery, the legal process associated with public-service compensation, and future wage negotiations.

The finance minister presented his maiden MTBPS on the 11th of November. Below are some key extracts:

The social wage – combined public spending on health, education, housing, social protection, employment programmes and local amenities – remains high by global standards, averaging 59.5 per cent of consolidated non-interest spending over the next three years. But the decade-long decline in South Africa’s GDP growth, combined with a large increase in public debt, has led to an unsustainable position.

Over the next three years, government will pay more for interest on its debt – an average of 21 cents of every rand collected in revenue per year – than it will spend on health, social development, or peace and security. Stabilising the debt burden is therefore essential for fiscal sustainability and freeing up the resources needed to support economic and social priorities.

Since the 2021 Budget, South Africa has benefited from a surge in global demand for our commodities. Higher commodity prices have temporarily increased economic growth and tax revenue. This windfall is a welcome once-off boost, but revenue remains well below pre-pandemic projections.

Meanwhile, greater economic output has failed to lift investment and employment, due to the structural nature of our economic underperformance. Businesses remain constrained by longstanding obstacles like electricity shortages, inefficient and high-cost rail freight, inadequate broadband spectrum and red tape. Progress in implementing reforms, apart from some important steps to bolster competition in electricity supply and ports, remains slow. And global borrowing conditions are becoming less favourable, indicating that issuing debt is likely to become more expensive.

Over the period ahead, government will accelerate structural reforms to promote growth, while keeping fiscal consolidation on course to narrow the budget deficit and stabilise debt. The temporary tax revenue windfall will be used to reduce the borrowing requirement. It will also be targeted at short-term support for people and businesses affected by COVID-19 and the outbreak of public violence in July of this year. A disciplined approach will enable government to achieve a primary budget surplus – meaning that revenue will exceed non-interest spending – from 2024/25, bringing the period of fiscal consolidation to a close. At the same time, government will be assessing the effectiveness of large spending programmes to ensure that South Africa can achieve greater value for public money.

We all want a vibrant, growing economy that enables people to earn an income and businesses to innovate, hire new workers and invest in the country. Over the medium term, government intends to shift expenditure away from consumption and crisis response towards growth-enhancing investment. Public spending can build the foundation, but cannot substitute for private-sector investment and job creation. In this regard, structural reforms will help boost confidence and investment in the economy.

The minister is making the right noises, but as in the past, implementation is the key issue. We will keep you informed of progress of key economic reforms.

• Diversifying energy generation to alleviate electricity supply shortages and taking additional steps towards a competitive energy market
• Releasing broadband spectrum, with the auction process starting on 1 March 2022
• Opening third-party access to the freight rail network by the end of 2022 to increase capacity
• Starting the eVisa system rollout by March 2022 to promote tourism
• Reviewing the legal regime governing skilled migration
• Accelerating infrastructure investment

Sincerely,