Medium-term budget – Eskom, income grant, and government spending

The Minister of Finance, Enoch Godongwana, will table the medium-term budget policy statement (MTBPS) in Parliament on Wednesday, 26 October 2022 at 14:00.

It sets government policy goals and priorities, forecasts macroeconomic trajectory, and projects the fiscal framework over the next three years.

As part of the budget policy statement, Godongwana will also outline spending and revenue estimates.

Absa forecasts a revenue overrun relative to the 2022 Budget target of R87 billion and a main budget deficit for the full financial year of R317 billion or 4.7% of GDP.

The MTBPS could pencil in a slightly higher trajectory for overall public sector compensation since the government has departed from its 2022 Budget assumption that there would be a 0% pay increase.

Absa expects the MTBPS to embed a pay deal of 3% on top of the 1.5% notch progression and the R1,000 per month post-tax cash gratuity.

The bank also expects the MTBPS to provide only the broad outlines of the government’s approach to the long-awaited Eskom debt deal.

It will likely indicate the government’s intentions for the social relief of distress grant, which is scheduled to expire at the end of the current fiscal year.

The following are important points economists are focusing on for this year’s MTBPS.

Government spending

A big focus point of Godongwana’s MTBPS will be the state’s servant compensation spending which accounts for 40% of the government’s non-interest spending.

Economists expect the minister of finance to give state servant wage increase projections.

Another area of interest is public wage negotiations which are continuing. Unions demand above-inflation wage increases, but the government said it could not afford it.

The minister is expected to give an update on negotiations and guidance in his budget.

The Department of Social Development said that almost 50% of all South Africans are dependent on government grants.

An update on the extension or termination of the R350 Covid-19 social relief distress (SRD) grant, and any further grant updates, are expected.

Government and Eskom debt

South Africa’s debt-to-GDP ratio is high and unsustainable at 69.9%, which excludes Eskom’s debt.

Economists expect an update on the government’s plans to bring debt to sustainable levels and its views on the expected debt trajectory.

Eskom’s debt is a critical area, and economists expect a clearer strategy for reducing the debt.

Eskom’s debt has increased to levels that can no longer be sustained. Its interest-bearing debt is R400 billion, and its total liabilities are R566 billion.

Eskom can no longer cover its debt’s interest payments with its operating profits.

It will most likely require a government bailout, as was proposed when it stated that it wants the National Treasury to take over R200 billion to 250 billion of its debt.

State Owned Enterprises

During his 2022 budget speech, Enoch Godongwana told the national assembly that SOE bailouts are no longer an option.

He noted that more than R308 billion in bailouts had been directed toward SOEs.

Pressure for further SOE bailouts will be tested as SOEs still struggle with significant mismanagement and corruption.

The SA Post Office, Denel, and many other SOEs are technically insolvent and will not be able to continue operating without bailouts.

The finance minister’s resolve will be tested when it comes to bailouts for poorly run enterprises.