A view on the medium-term budget policy statement (MTBPS)

Sanisha Packirisamy

The Medium-term budget outcomes highlight a prudent approach to fiscal spending with R154 billion in proposed cuts to expenditure over the next three fiscal years. However, the bulk of these cuts are expected to fund the overrun in the wage bill rather than more productive spending in the economy, says Sanisha Packirisamy, economist at Momentum Investments

“Fiscal consolidation remains challenging in a low growth environment. While growth in gross domestic product (GDP) on a per capita basis averaged 1.4% for developed markets over the past decade and 2.7% for emerging markets, growth in per capita GDP has declined by 0.4% on average for South Africa.” 

“Treasury highlighted that long-term fiscal risks include: Lower potential growth, difficulty in executing government’s borrowing strategy and spending pressures (particularly at local government level and at the state-owned entities)”.

“South Africa’s debt burden remains substantial, and the threats to controlling spending and providing additional funds to troubled state entities and struggling municipalities are still significant in the medium to long run. Many challenging fiscal decisions are essentially being delayed rather than addressed, in our view,” according to Packirisamy.

She continues: “The speed of reform efforts remains disappointingly slow, especially in the face of sluggish economic growth, making a stronger push for implementation essential. With low growth posing a fiscal risk amidst a more divided voter base and increasing socio-political demands on government resources, particularly in the pursuit of upward mobility due to insufficient employment opportunities, South Africa’s path to fiscal consolidation and debt stabilisation is squeezed between limited growth prospects and mounting expenditure pressures.”

“Consequently, while credit ratings are likely to stay stable in the short term, the persistent fiscal and growth risks over the medium to long term suggest a potential downside risk to South Africa’s sovereign rating outlook in the future,” concludes Packirisamy.

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