North-West University Business School Professor Raymond Parsons has called for a realistic and sound Medium-Term Budget Policy Statement (MTBPS), given the additional fiscal and economic challenges facing the country.
"The National Treasury has already warned of the tough decisions that will need to be taken in the medium-term budget. A shortfall of about R100 billion is now widely forecast. Unless remedial steps are taken, the risks of another 'fiscal cliff' for South Africa will rise," Parsons said.
He said the latest Monetary Policy Review also emphasised that a lack of fiscal sustainability would keep interest rates elevated for longer.
His appeal comes ahead of Minister of Finance Enoch Godongwana's MTBPS, which will be tabled at the National Assembly in Cape Town today.
"It is now generally recognised that the combination of low growth, less-than-expected tax revenues, and continued high government spending means that the economic and financial assumptions on which the 2023 Budget projections in February were based are no longer valid.
"Several of the fiscal risks outlined in the main Budget have materialised. These factors have now severely reduced available fiscal space, necessitating a realistic approach to a less favourable set of circumstances. If the medium-term Budget is not credible in its actions, it will be assumed that there will just be more borrowing or big tax rises to come later," Parsons said.
He identified government bailouts to struggling state-owned enterprises as a persistent problem.
"Transnet recently asked government for financial support - which is basically a bailout - to implement its turnaround plan. The Bureau for Economic Research has warned that Transnet's request comes at an inopportune time for the fiscus.
"How the National Treasury decides to respond to Transnet's need for further assistance will be seen in the MTBPS. South Africa is already at the outer boundary of what it can reasonably do to contain its debt burden and stabilise its public finances. Reducing the deficit inevitably now means recalibrating the broad dynamics of its public finances," he said.
With the debt-to-GDP ratio now over 70% and expected to increase further, Parsons said South Africa's rising debt bill is already absorbing too large a share of the budget at the expense of other major social spending and infrastructure.
"A long-range fiscal plan is, therefore, now needed to steadily wind down spending and debt and bring them under control in a way that establishes clear priorities for the future.
"Fiscal policy will inevitably have to be pragmatic and realistic to deliver sensible trade-offs in order to project a credible medium-term Budget that offers more predictability and certainty.
"This fiscal balancing act will, therefore, require a skilful but level-headed revised Budget 'mix' and projections. It requires successfully managing multiple spending pressures at a time when political elections are pending in 2024," he said.
Credibility
Parsons emphasised that the medium-term Budget must be a credible fiscal plan that does enough in challenging economic circumstances to placate nervous markets and not allow excessive borrowing to 'crowd out' the private sector.
"It is apparent that, whatever other steps may be needed to 'balance the books', all roads eventually run through inclusive growth if South Africa wants fiscal sustainability in the longer term. And if, through job-rich growth, South Africa can also move more citizens out of welfare and into work, a lowering of the quantum and risks of welfare dependency will also improve the fiscal balance.
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"The number of countries that have grown successfully out of large debt is really quite small, whereas the number of economies that got into major fiscal difficulties that ultimately ended in inflation and other economic distortions is quite large.
"This emphasises why there can be no complacency about the immediate medium-term Budget challenges and no doubt about the National Treasury's determination to keep the fiscal situation manageable," he said.
Parsons said the 2023 MTBPS which is also known as the mini budget, must reinforce the overall message that the trajectory of South Africa's GDP growth (and potential growth) will, eventually, be driven mainly by the pace at which structural reforms materialise, especially on the energy front.
"The medium-term Budget needs to reflect a renewed commitment to do what is necessary to help reduce South Africa's risk premium by strengthening the pillars of fiscal sustainability," he said.
