RAYMOND PARSONS AND WALDO KRUGELL: First GNU medium-term budget to be scrutinised for job-rich growth

“When a man is to be hanged in a fortnight, it concentrates his mind wonderfully!”

This quote, attributed to English poet and playwright Samuel Johnson, captures the mood of SA’s present political landscape as recent tailwinds and the drumbeat of the upcoming 2026 local elections and 2029 national elections sharpen the focus on the importance of economic performance and delivery.

While a week is said to be a long time in politics, a few years are alarmingly brief to show effective delivery and demonstrable socioeconomic advances. Extraordinary discipline and persistence are therefore required to make progress.

This pressure must be uppermost in the minds of the government of national unity (GNU) in general and the National Treasury in particular as the medium-term budget policy statement (MTBPS) looms on October 30. Of course, the technical foundation for the government spending outlook are solid, with last February’s budget as a key point of reference as to prevailing economic and fiscal realities.

However, both the message and the fiscal strategy must now also reflect recent shifts in SA’s economic and political circumstances, especially the GNU’s strong commitment to secure higher inclusive job-rich growth. So, given what we now know of the global and domestic outlook for the SA economy, what might govern the appropriate final shape and size of the 2024 medium-term budget? How might it be best aligned with the changed political economy in which SA finds itself as 2024 draws to a close? And how will it set the scene for the main budget later?

Finance minister Enoch Godongwana will initially have a positive economic story to tell. The economy is now in recovery mode, with waning inflation, easing interest rates, more energy security, lower political uncertainty, the effect of the “two-pot system” withdrawals, better tax revenues and positive levels of both business and consumer confidence.

High-frequency economic data is mainly upbeat over future business conditions. This progress to date is also confirmed by the North-West University Business School policy uncertainty index, which is edging closer to positive territory. The question for the 2024 medium-term budget is therefore how to build on these trends and help promote a bigger, stronger and better economy. 

To begin with, all eyes will be on the basic GDP growth assumptions that will drive the 2024 medium-term budget and beyond, not least because of what they mean for the state’s tax revenues and debt ratios. While recently there have been over-ambitious forecasts of economic growth next year, Godongwana has to be more conservative in his approach. This year the growth rate is likely to be only about 1%, and for 2025 growth forecasts range from 1.6% to more than 3%. What matters is the growth target chosen for the medium-term budget, which must be realistic and credible.

Fiscal challenges will nonetheless still be evident in the 2024 medium-term budget. The risks remain of large spending pressures, such as the unfolding National Health Insurance and basic income grant, optimism bias in debt projections and commitments such as bailouts to state-owned enterprises (SOEs). Elevated risks to public debt levels in SA still call for enduring and carefully designed fiscal adjustments to promote “fiscal consolidation” and stabilise the overall debt-to-GDP ratio.

The medium-term budget will need to convincingly demonstrate that SA is still on track to achieve a primary surplus on the budget. The proposal to enforce a fiscal or debt rule will not avoid tough trade-offs, and in any event needs further consultation.

The skewed composition of government spending continues to generate painful priority dilemmas. A major problem is that the overall balance between consumption and investment spending by government has been less than ideal for some years. Growth in public sector wages in particular has outstripped inflation and private sector wage growth over much of the past decade. Hence SA has now reached a stage where the large increases in public sector remuneration have meant a reprioritisation of spending in ways that not only cut administrative “fat” but have also now been seriously cutting into education and healthcare “muscle”. 

The medium-term budget speech should outline the extent to which the conditions set for debt relief by the Treasury to distressed or failing SOEs, such as Eskom, are being met. According to the National Treasury, by 2025/26 Eskom will have received nearly R500bn in bailouts since 2008/09. Equally important is an update on the “denationalisation” or restructuring of state entities to make them more efficient instruments of economic development. In general, strict timelines should be set and enforced, with consequences if they are not met. Procrastination is the enemy of delivery.

The recent widening and deepening of the partnership between the government and business to assist with capacity and implementation needs to be reinforced in the medium-term budget. While business does not govern the country, it has helped keep it governable. It is also clear that while current government debt levels mean it is “dissaving”, corporate saving has risen, and companies are reported to have significant cash balances. If the right GNU policy environment converts the present short-term business confidence into long-term investor confidence, this would be extremely positive for SA’s growth prospects. 

Indeed, a recent SA Reserve Bank survey referred to household consumption as “still doing the heavy lifting” in SA’s incipient economic recovery. In reality, capital investment, especially that of the private sector, is eventually the kingpin of job-rich growth. Recognition in the 2024 medium-term budget of the factors that strengthen investor confidence and make SA a preferred investment destination would be consistent with the mandate of the GNU. These would range from how soon the country can get off the Financial Action Task Force greylist to Operation Vulindlela achieving success in dealing with dysfunctional local authorities. 

Being the first medium-term budget of the GNU gives it a renewed status. At the same time SA, which does not have a rich set of policy choices, needs a judicious mix of fiscal steps that still project good fiscal governance, a credible three-year outlook and sound risk management. In an uncertain world, the economy also needs to build resilience to deal with any future external shocks by not being overindebted.

What shines through all the fiscal trauma SA has experienced is the overwhelming need for a dramatic and sustainable boost to the country’s flagging growth rate on the basis of growth-friendly structural reforms. 

• Parsons is professor at the North-West University Business School. Krugell is professor at the North-West University School of Economics.