What to expect from the medium-term fiscal policy statement

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When South Africa’s Finance Minister Enoch Godongwana presents his Medium Term Fiscal Policy Statement (MTBPS) on October 26, 2022, he will need to focus on policies that accelerate real economic growth and address the financial future of South Africa. Eskom, say Citadel’s wealth management specialists.

The balance between aid and growth

Maarten Ackerman, chief economist at Citadel, says all eyes will be on Godongwana to see if he will prioritize pragmatic policies that spur real business growth and job creation, instead of bowing to pressure populists who prioritize social spending but have no lasting positive impact on the country.

“South Africa is still stuck in a balancing act between low growth and populist needs that will continue indefinitely, like the Basic Income Grant,” says Ackerman. As a country, it is vital that South Africa revives the economy to fight poverty and inequality in a sustainable way.

“In terms of South Africa’s macroeconomic outlook, it is critical to note that there has been yet another windfall of revenue on top of the revenue overruns in recent years. So we will have to see what the Minister of Finance does with it. We would like windfall gains to be used productively – not just for one-time, temporary social spending that does little or nothing to spur economic growth,” Ackerman adds.

Time to take on Eskom for investor confidence

From an investment perspective, Citadel Chief Investment Officer George Herman is urging Godongwana to address Eskom’s situation. “We would appreciate any guidance the Minister of Finance can give regarding the intention to deleverage Eskom’s balance sheet. I believe and hope that this will be a central objective of the MTBPS 2022,” says Herman.

Eskom has asked the government to reduce its debt balance sheet by around 200 billion rand, while recently informing the Standing Committee on Public Accounts that it was carrying a total debt of almost 400 billion rand, which could not be repaid due to its current cash flow and liquidity. problems. It also faced an unpaid municipal debt of around R40 billion.

It was recently reported that Eskom expects to receive R20 billion tranches of taxpayers’ money over the next few years to meet its debt service commitments, much to the dismay of taxpayers. who are already paying for a service they are not fully receiving because of the power outages, which have recently intensified.

Tax reform is still needed

“Finally, we hope there will be a proper update on the tax reform that is in the works and if tangible progress is being made,” Ackerman says.

“In terms of SA’s debt-to-GDP ratio, how they use – or abuse – the revenue overshoot is extremely important because our debt-to-GDP ratio is already much higher than it has. been over the past decade. The deficit also presents a risk, so the fact that we are seeing slightly better numbers does not mean that the difficulties are behind us. If anything goes wrong, we will again be close to the fiscal cliff that Minister Tito Mboweni warned us about,” says Ackerman.

In 2021, Citadel also expressed hope that the Minister would be cautious and take advantage of the opportunity presented by additional revenue to pull the country out of its “very tight budgetary situation”. At the time, Ackerman said, “If we don’t revive the economy very soon, we could have more fiscal challenges over the next two to three years.” Today, tax reform remains a top priority.

Maarten Ackerman is Chief Economist at Citadel.

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