The most consequential decision facing the Finance Minister is a solution to reduce Eskom’s more than R390 billion debt. That’s according to Alexander Forbes’ chief economist, Isaah Mhlanga.
The Medium Term Budget Policy Statement will be presented next week.
Mhlanga says the debt relief is widely expected to be in the region of R200 billion.
Another big decision the Finance Minister faces is what to do with the social relief of distress grant, given the pressures of the rising cost of living amid the high unemployment rate.
The Medium Term Budget Policy Statement will be tabled under a challenging economic environment, characterised by tense geopolitics, high inflation and rising interest rates.
Along with the weakening global economy, South Africa’s growth prospects are getting worse, dragged down by intense load-shedding.
Mhlanga says the country will likely continue suffering from rolling blackouts for at least the next two years. He says South Africa will likely report a recovery in tax revenue collection, as personal income tax and value-added tax remain robust while corporate income tax is supported by commodity prices.
“The best point would be not to use up the extra tax revenue collections that we make that were not budgeted for. Essentially, we collect more taxes than what we budgeted for. We put them in a contingency reserve so that when the economic shocks hit, we have something to use to cushion the economy. You would remember for the last decade that contingency reserve was depleted, it’s only from 2 years when we started rebuilding that contingency reserve which is the right approach.”
Mhlanga says if South Africa was to introduce a permanent basic income grant, the country could expect a fiscal crisis within 5 years. He says it’s not expected that National Treasury will announce a universal basic income grant but rather an extension of the Social relief of distress grant for just one year.
“South Africa cannot afford a welfare state, especially, in the context of growth that remains quite stagnant, as it stands given the current policy configuration. SA is a 2% growth economy which cannot afford a welfare state. If we were to get a permanent basic income grant, we will have a fiscal crisis within 5 years.”
Mhlanga says it’s important for the government to continue with fiscal consolidation to reduce debt servicing costs as they take away from money that could be used for other social imperatives.