Economists had expected Finance Minister Enoch Godongwana to announce the transfer of a large portion – to the order of R200 billion – of Eskom’s debt to the national government’s balance sheet.
On July 25, President Cyril Ramaphosa said that there was a commitment in principle to move a portion of Eskom’s R400bn debt to the sovereign balance sheet, details of which would be announced in the October Medium-Term Budget Policy Statement (MTBPS).
Instead, the resolution of this was postponed to the February 2023 Budget.
The theme of the October 2022 Medium-Term Budget Policy Statement was “Stabilising the public finances to weather the global storm”.
That is why Finance Minister Enoch Godongwana aims to achieve a primary (non-interest spending) surplus as early as the next fiscal year.
The budget balances for 2022/23 to 2024/25 have improved, mainly due to higher-than-expected revenue projections.
The increases in non-interest expenditure partially offset the lower interest payments and higher revenue projections.
That meant that the gross debt to Gross Domestic Product (GDP) ratio stabilises near 70% rather than the 95% expected in the 2020 MTBPS.
This should please the credit rating agencies who have this year put South Africa on a “stable” outlook after several years on a “negative” outlook.
An improvement in the actual credit rating will have to wait until South Africa’s real per capita GDP growth outlook improves.
In that respect, the Treasury does not offer much hope as it has cut its 2022 GDP growth outlook to 1.9% from the 2.1% forecast in the February 2002 Budget.
The cut was mainly driven by weaker net exports with the volume of imports outpacing that of exports as domestic production has been hampered by the many hours of load shedding, as well as disruptions to the transport networks.
The Treasury said the impact of the pandemic, the July 2021 unrest and the April 2022 floods on employment and investment decisions would probably weigh on the recovery over the medium term.
That was why it projected only a 1.9% rise in gross fixed capital formation next year from 4.0% this year.
The Treasury has modelled what an improvement in business sentiment and implementation of policy changes would have on the South African economy.
Its upside Scenario A assumes that major public entities such as Eskom and Transnet successfully scale up capital expenditure over the medium to long term, boosting overall fixed investment in the economy.
The additional capital spending, as a result of efficiency improvements, allows these entities to rehabilitate eroded infrastructure, thereby improving their ability to provide core services (and goods) in line with their mandates.
This supports a conducive business climate, enhancing private-sector participation and boosting the productive capacity of the economy.
Business confidence levels then improve, growth constraints are eased and economic activity is stimulated.
Improved spending by public entities supports the economy mainly through improved spending on gross fixed capital formation.
Real GDP growth is estimated to be 0.5 percentage points higher, and investment is estimated to be 5.4 percentage points higher, than the baseline forecast for 2025.
BUSINESS REPORT